The Pandora’s Box has been split wide open.
The Uttar Pradesh government led by Yogi Adityanath has initiated the process to write off farm loans of up to Rs 1 lakh taken by small farmers who had borrowed from cooperative banks and from public sector banks. The beneficiaries: 21 million farmers. The bill: Rs 36,359 crore.
The demonstration effect was inevitable and was visible in Parliament and state assemblies where MPs and MLAs are haranguing the government.
*In Maharashtra, the Devendra Fadnavis government is weighing options. The bill: Rs 21,500 crore.
*In poll-bound Karnataka, the Siddaramaiah regime is working on a pre-poll package—5.6 million farmers owe cooperative and nationalized banks over Rs 52,000 crore.
*In Punjab, where total farm indebtedness has been estimated at Rs 70,000 crore, a committee will assess agricultural debt and submit a report.
*In Andhra Pradesh, the government is borrowing to pay —it has already released Rs 7,200 crore out of the Rs 24,000 crore loan waiver.
*In Delhi, farmers from Tamil Nadu staged a well-organised protest forcing the state to write off loans of Rs 5,780 crore farmers owed to cooperative banks.
Doubtless more states will face the pressure to adopt populist policies as they approach elections. In Gujarat, going to polls later this year, the Congress has promised a waiver if elected. The ruling party and the opposition are pushing for waivers in Madhya Pradesh and Rajasthan which go to polls next and in Haryana. Imagine the bill even if ten of the large states produced their version of waivers – imagine the dent on already burdened state finances.
And poll sops may not be limited to small and marginal farmers. On Tuesday, hearing a Public Interest Litigation, the Madras High Court questioned the limitation on waivers to those who own up to five acres of land and ordered the state include all. The court observed that “Article 14 of the Constitution of India primarily is a guarantee against arbitrariness in the State action. The Doctrine of classification has been evolved only as a subsidiary rule for testing whether a particular State action is arbitrary or not. Thus, though Article 14 permits classification, it completely prohibits class legislation.” For sure, the limits of profligacy could rise.
Farm loan waivers are par for the course for a political class which has flailed and failed to invest and make agriculture viable. In 1990, Madhu Dandavate warned India about the risks of mortgaging economic independence and then went on to announce a Rs 10,000 crore loan waiver. The V P Singh government was backed by the BJP but it didn’t protest. In 2008, the UPA announced a loan waiver which eventually cost Rs 72,000 crore. BJP, the principal opposition, did not protest. In 2017, Congress, Left and the entire opposition are sloganeering for more.
There is no question farmers need help (Why Agriculture Cannot Wait? http://bit.ly/24uW8bm). There is no disputing the distress. And one factoid illustrates this. In 2015, the National Crime Records Bureau reveals, 12,602 farmers/cultivators/agricultural workers committed suicide—that is 34 suicides every day, or three deaths every two hours. That loan waivers does not help has been proved by numerous studies.
What is more telling is the picture from the ground. In 2003, an NSSO survey revealed that out of 89.35 million farmer households, 48.6 per cent or 43.42 million were indebted. In 2008, the UPA pushed through the biggest loan waiver. In 2003, an NSSO survey revealed that out of 89.35 million farmer households, 43.42 million were indebted. Worse, over 40 per cent would rather quit farming. And that is unsurprising. The average monthly income in 2012-13 for an agricultural household was Rs 6,426.
Pop sociology, particularly of the social media kind, suggests that there is justification for farm loan waivers. The argument is that if loans for corporates can be written off, and there have been write-offs, why object to farm loan waivers. Fact is a write-off is not a waiver.
More pertinently, the bill is borne by the tax payer. It also impacts credit discipline—and not just for banks. The carefully engineered evolution of micro finance to deliver credit to the unbanked farmers is threatened by loan waivers—already in many states micro finance lenders are facing defaults. Further higher borrowing by states will push up interest rates and may lead to crowding out of private investment.
There is no disputing the thesis that the State must intervene in any sector that requires relief -- and agriculture requires it and deserves it. The question is how can the intervention not damage interests and deliver lasting relief. Instead of a waiver, state governments could craft a scheme that offers a rollover of the loan as is done for corporates. The rollover could be across three or five harvest seasons on softer terms via the Aadhaar-enabled Jan Dhan accounts. The government can back this up with higher crop remuneration and yield based bonus to boost farm incomes. This would enhance incomes, keep them out of the dole net and ensure their dignity is intact. The recast of loans must also be accompanied by ramping up of procurement centres, delivery of inputs and availability of water to improve viability of the sector.
The high decibel political rhetoric is mostly opportunistic; it falls silent on real issues. Every year India loses over Rs 92,000 crore in post-harvest losses (The Sordid Saga http://bit.ly/2jDijKQ). How about ensuring credit? Bank credit to farmers has been lower than target every year, past three years. Worse, the number of loan accounts is just 40 million in a country with over 90 million agricultural households. Seventy years after Independence, 60 per cent of sown area is rain-fed. Why is ensuring accountability on irrigation projects so low on political priority? How about a little scrutiny of E-NAM, the much announced online market for agri produce?
The sad reality is that enfeebling dole politics has prevailed for decades and delivered dividends.
Shankkar Aiyar
Author of Accidental India: A History of the Nation’s Passage through Crisis and Change (shankkar.aiyar@gmail.com)