Farm loan waivers crippling state finances
The farm loan waiver practice which began in the current phase with the Yogi Adityanath government in Uttar Pradesh waiving off loans for small and marginal farmers to the tune of over 36,000 crore is having a snowball effect . That Maharashtra has waived off Rs 30,000 crore loans and a parallel waiver seems on the anvil in Madhya Pradesh is testimony to the ripple effect that has been caused. Amid the muted protests from the Reserve Bank there is a realisation that there is a crippling effect of such waivers on the finances of State governments. While economic prudence is at a discount, profligacy is to the fore. Union Finance Minister Arun Jaitley has already warned the states that the money for farm loan waivers will have to come from the coffers of the states themselves, the Centre does not have the resources to bankroll this activity. The UP government has decided to issue Kisan Rahat (farmers’ relief) bonds to pay for this populist move but there is no denying that there would be a severe strain on State finances. In Maharashtra, the agitating farmers have decided to defer their agitation until July 25 to see how the promises made to them are translated into action.
The Fadnavis government in Maharashtra had earlier promised a ‘conditional’ waiver but that was unacceptable to the farmer-agitators. With opposition, political parties having jumped into the fray to exploit the volatile situation, genuine financial considerations have receded into the background. In a climbdown, the State has agreed that even cultivators with large land-holdings would qualify for write-off if they are fully dependent on farming. In MP, the real issue was the unremunerative prices that farmers were getting for various crops due to a bumper harvest but agitating farmers are jumping on to the farm loan waiver bandwagon, encouraged as they are by opposition parties.
Significantly, a 2014 World Bank study on the farm loan waiver announced in 2008 by the erstwhile UPA government had found that the scheme had no significant effect on productivity and investment in agriculture, and, in fact, worsened loan allocation in districts with greater exposure to the debt waiver. Experts say unless farmers are given the right incentives to shift to more remunerative and sustainable farming and non-farming options, Indian agriculture will not be able to overcome its current crisis. Ad hocism and piecemeal, patchwork solutions are not the panacea for farmers’ woes. A well-thought-out policy is the need of the hour rather than knee-jerk reaction to crisis situations.