DON’T TRY TO WIN VOTES BY WAIVING FARMERS’ LOANS
RESERVE BANK GOVERNOR URJIT PATEL HAS RAISED A MORE FUNDAMENTAL QUESTION: HE SAID THE WAIVERS WILL “ENGENDER MORAL HAZARD.” THIS WILL MEAN “UNDERMINING HONEST CREDIT CULTURE.”
Uttar Pradesh chief minister Yogi Adityanath has announced that he will fulfil the BJP’s election promise to forgive farmers their loans of up to ₹ 1 lakh. This promise was apparently one factor in the BJP’s sweeping victory in UP. This makes it all the more likely that other states will follow suit.
Politics is superseding prudence. No matter what financial jiggerypokery is adopted to disguise the cost of these waivers, they are expensive. Whether the states or the Centre pay, the money has to be found from somewhere, which means there will either be less money to spend on development, or it has to be raised from taxpayers. But the Governor of the Reserve Bank Urjit Patel has raised a more fundamental problem of loan wavers than their financing: He has said the waivers will “engender moral hazard.” This will mean “undermining honest credit culture.”
These are valid arguments against the agricultural loan waivers but bearing in mind the acute distress indebtedness causes, all too often leading to suicide it would be hardhearted to object to them. If debts of undeserving wealthy business customers can be waived off by public sector banks, why shouldn’t deserving farmers be relieved of the burden of their debts? But the lesson from the past is that waivers will be seen as the solution to farmers’ problems, which they are not. They enable politicians to continue ducking the issues, which have created the indebtedness.
Successive governments have no justification for failing to bring about agricultural reforms. Seventeen years ago, I spent two weeks in Karnataka researching a chapter about the plight of farmers for a book I was writing.
The chapter started with the stories of two farmers who had committed suicide. Both saw no future for themselves because there was no way they were going to be able to pay their debts. The problem they faced was that their income was insufficient to meet their expenditure, much of which was incurred by the purchase of seeds and fertilisers to continue in business as farmers, and interest on their debts.
After hearing about those two tragedies I went to the nearby University of Agricultural Sciences, Dharwad, to discuss the reasons for the distress among farmers. The view of the faculty there was that research had concentrated on production, and post-harvest problems like marketing, storage, and food processing had been ignored. One scientist said: “We forgot the market. Now the stark reality is staring us in the face. Farmers come to us and say, `We did everything you told us to produce crops – now tell us where to sell them.’ “Seventeen years later and with the massive election-winning debt waiver of 2008 behind us some 20% of the fruit and vegetables India produces still rots for lack of a market, cold-storage, or processing plants, while grain packed inefficiently and labour-intensively in gunny bags is still rotting in go-downs. Middlemen still cream off the profits in most of the mandis, while children suffer from malnutrition. Farmers continue to commit suicide.
Loan waivers have also done nothing to resolve the problems farmers face when they come in contact with officials and bank employees, particularly the all-pervasive corruption. One of the farmers whose story I heard then had left a note of all his debts in his pocket.
One of the debts was a bribe an official was demanding for registering the transfer of land to the farmer after the family holding had been divided. Rural banks’ bureaucracy has proved such a hurdle that many UP farmers will not benefit from Yogi Adityanath’s generosity because they have been forced to borrow from money-lenders or other traditional sources which are not covered by the waiver.
The Centre showed signs that it recognises the causes of farmer’s indebtedness. The National Agricultural Market Programme has been initiated to introduce a common e-market platform. Digitalisation of the banking system and Jan Dhan accounts should make borrowing from banks easier.
But digitalisation is not a magic wand. The State must not win votes by waiving farmers’ loans, they need to work together to tackle the fundamental causes of farmers’ indebtedness. Those causes include the fact that too many people, 58% of the population, are still trying to make a living out of the land and the land will never be able to support all of them.