The father of green revolution MS Swaminathan once said “ If agriculture goes wrong nothing else will go right”.
Agriculture, being the backbone of Indian economy ,needs special attention from the policy makers.
Very recently the Prime Minister of India declared some policies for doubling of farmer’s income by 2022.
So many policies have taken earlier too, but age-long distressful condition of farmers remains same even after seven decades of independence.It is clear that agriculture is no more lucrative and farmers are moving fast to other fields.
Even then about 50% of the total population engaged in this sector and accounts for 15% of GDP.
Recently waiving off loans of farmers by State Governments of different corners of Indiahas become a trend among the politicians. But will it be enough to solve the problem of our hopeless farmers? Will the waiving off of farm loan be the only panacea for farmers? Let us delve into the situation to understand the real scenario.
Recently three States like Madhya Pradesh, Chhattisgarh and Assam resorted to this mechanism of loan waiving to address the farmer’s distress. Besides these three states, Andhra Pradesh, Telangana, Uttar Pradesh, Punjab, Maharashtra, Rajasthan and Karnataka have also waived farm loans since 2014.
If we remain self satisfied with the thought that loan waiving is going to mitigate the plight of the farmers then it is the high time to wake up.
This may be a temporary solution but in the long run this may mar the economic condition of a country.Waivers spoil the credit discipline in the system.
Honest farmers repaying their loans also turned defaulters after such announcement of waiving off the loans.Farmers who pay their loans are generally not reimbursed.This moral hazard should have to be kept in mind.
RBI warned the Government on the danger of loan waivers.
Write off of loans takes its toll on the banks, increasing the non -performing assets of banks.
Such announcement of state Government definitely lowersthe burden on farmer thoughit burdened the economy. Banks cannot lose money on their loans. Once loans have been sanctioned, they have to recover the money somehow.
In such case States have to stepinto the situation and they have to borrow money in order to compensate the banks. This again put lots of pressure on tax payers of the country.
Governments would not be in a position to cut their regular expenditure like salaries etc., it have to cut the asset creating capital expenditure. If the money could have beenutilized in building agricultural infrastructure, the need for waiving off the loans would be reduced also. In this context, farm loan waiver may lead to breach of 3% threshold of fiscal deficit as given in state level FRBM Acts. A prolonged increase in fiscal deficit would increase debt in long run.
Loan waiver covers only a tiny fraction of farmers. Waiver do not cover loans from non-banking sector or money lenders. Loan waiving excludes agricultural labourers who are more weaker than cultivator in bearing the consequences of economic distress. Another important thing is that farmers need money at the onset of agricultural season when they are buying seeds, fertilizer and when they are arranging for tractor, irrigation in their land.
But loan waiving comes at the end of the year when all the agricultural activities have already been completed. If money can be arranged at the time of their need, then they do not have to go to any money lenders.
Now let us discuss way forward for coming out of this problem –
Indian agriculture still much dependent upon the rainfall, monsoon and vagaries of the nature. Majority of farmers (86%) are small and marginal with declining and fragmenting land holdings, these uncertainties make them more vulnerable and risk-prone.
Crop insurance is an effective way of preventing plight of farmers. Government can subsidize the payment of insurance premiums and encourage them to enroll into the scheme. Ensuring minimum support price (MSP) for their production can also be helpful for improvement of their condition. Agri – infrastructure development– including agricultural market, cold storages, ware-houses & agro processing – is a dire need of this time.
Waiving of farm loans cannot be the permanent solution for mitigating the distress of the farmer rather it is detrimental for the nation’s economy. This only makes farmers dependent upon States. We have to be more committed in making our farmers self-reliant by adopting a sustainable solutionwhich must include structural agricultural reforms.