Farm loan waivers: Parties count votes, not the cost
With elections around the corner in Uttar Pradesh and Punjab, Congress Vice-President Rahul Gandhi, his party’s chief ministerial candidate for Punjab, Amarinder Singh, and Aam Aadmi Party chief Arvind Kejriwal are wooing farmers of the two states with promises of a debt waiver.
With elections around the corner in Uttar Pradesh and Punjab, Congress Vice-President Rahul Gandhi, his party’s chief ministerial candidate for Punjab Amarinder Singh and Aam Aadmi Party (AAP) chief Arvind Kejriwal are wooing farmers of the two states with promises of a debt waiver. Those in the National Democratic Alliance government at the Centre, who favour a more fiscally prudent course, are also under pressure from within the Bharatiya Janata Party to announce a matching waiver.
Experts are divided whether debt waivers ease farm distress. They point to the effects on banks reeling from mounting bad debts and the effect on state finances. They also doubt whether the benefits of loan write-offs reach the intended beneficiaries. Others say loan waivers are the only realistic solution to farmer indebtedness, particularly when returns from farming are low and public investment in the sector is dismal.
Such warnings have not deterred politicians from promising and often delivering debt waivers. In one of her first decisions after being re-elected, Tamil Nadu Chief Minister J Jayalalithaa issued orders to waive ~5,780 crore of loans taken by small and marginal farmers from cooperative banks. The scheme, whose guidelines were announced in July, will cover the outstanding principal, interest, penal interest and all other charges of short-term crop loans until March 31, 2016.
In his ongoing kisan yatra across Uttar Pradesh, Gandhi has promised a debt waiver to farmers if the Congress forms the government in the state. In Punjab, Singh has asked farmers not to commit suicide as one of his first decisions, if he were to become chief minister, would be to waive their debts. Kejriwal, whose party has released a manifesto aimed exclusively at the farmers of Punjab, has also promised a loan waiver. Gandhi has pressed the Narendra Modi government at the Centre for a farm loan waiver worth ~49,000 crore in Uttar Pradesh, a seventh of the state government’s budget of ~3, 46,935 crore in 2016-17. Congress leaders in Punjab have threatened an agitation if the Shiromani Akali DalBJP government does not announce a ~ 57,000-crore waiver. Punjab Agriculture University estimates the total farm indebtedness in the state at ~69,355 crore. Of the Punjab’s government’s 2016-17 budget of ~86,387 crore, ~5,600 crore was allocated as a free power subsidy to farmers. The Punjab government’s finances are in a mess and it will be an uphill task for any future governments to deliver on a debt waiver.
The Akali Dal has for long sought special status for Punjab from the Centre. The state government owes ~1.24 lakh crore and industrial activity has slowed down significantly. Uttar Pradesh Chief Minister Akhilesh Yadav, while presenting the budget last year, had said the estimated debt burden of the state could reach ~2,93,200 crore by the end of the financial year. T Haque, former chairman of the Commission for Agriculture Costs and Prices who is heading a NITI Aayog committee on Model Land Leasing Acts, calls loan waivers unhealthy. “It should never be attempted. It will lead to the collapse of the banking system,” he says, adding farmers instead prefer appropriate, adequate and timely farm credit. Short-term loans for seeds and equipment can be provided at subsidised rates after two consecutive drought years.
“Farm loan waivers are a reaction to a crisis that only helps onethird of farmers. It is not a permanent solution,” says Ajay Jakhar, chairman of the Bharat Krishak Samaj. Around 40 per cent of the country’s farmers do not have access to institutional credit, and of the remaining some may have repaid their loans. “It remains to be seen how many farmers actually benefit from these loan waivers,” Jakhar adds.
Sudhir Panwar, president of the Kisan Jagriti Manch and member of the Uttar Pradesh Planning Commission, says, “It needs to be seen if state budgets can support farm loan waivers. Unless that is understood, all promises are empty rhetoric to gain votes.” He points out indebtedness among farmers is rising because of falling income due to lack of public investment in agriculture.
“Any unusual increase in the minimum support price will push up inflation so the next best alternative is to waive farm loans. At some point the state and central governments will have to consider a farm loan waiver because rural wages have not risen in step with wages in cities,” he adds.
Such warnings do not deter politicians, though. During his public meetings in Uttar Pradesh, Gandhi points to the ~65,000 crore farm loan waiver announced by the Congress-led United Progressive Alliance in 2008.
The Congress tally in the 2004 Lok Sabha elections was 145, which increased to 206 in 2009. Gandhi is also telling farmers the Modi government has waived ~1.14 lakh-crore loans to companies.