Not by waivers alone ET CETERA
Averitable contagion of farm loan waivers seems to be upon us. On April 4, the new Uttar Pradesh government forgave loans of up to ~1 lakh per farmer, as it had promised in its election manifesto. The same day, the Madras High Court ordered Tamil Nadu, which had earlier announced a similar measure for small farmers’ loans from co-operatives, to extend that relief to all farmers. Punjab will act any day now. The Maharashtra chief minister has telegraphed his intent to do so as well. Karnataka cannot be far behind in view of the imminence of state elections. Earlier, Andhra Pradesh and Telangana had waived farm loans up to ~1 lakh following the state elections in 2014. Rahul Gandhi’s frequent appeals for a nationwide loan waiver may yet become a fait accompli as many another state would follow suit.
Reserve Bank of India Governor has rightly stressed the “moral hazard” of such actions and their consequences for “national balance sheets”. Analysts have discussed the impact of these new burdens on state finances — more specifically, their budgetary deficits and the Fiscal Responsibility and Budget Management Act, 2003 — as well as means for funding the waivers. That does not make cheery reading.
Yet, we could accept these consequences if loan waivers were a cure for rural distress. “[T]he currentwaiver is what such measures have always been: a palliative, if a much-needed one at that, but not the panacea it is made out to be. The crisis of indebtedness will recur, because of basic structural factors and not what some critics of waivers call the “default culture” they are supposed to encourage. This will happen sooner rather than later, one hopes (likely in vain) not in as severe a fashion as now, requiring yet another infusion of relief.” I wrote that not recently but nine years ago in April 2008, when agricultural loans of over ~70,000 crore were forgiven nationally (http://www.business-standard.com / article/opinion/shreekant-sambrani-sisyphean-challenge-of-indian-agriculture-108041701033_1.html).
The ghosts of waivers past return to haunt us because we believe rural indebtedness to be the disease and not a symptom of the underlying distress. That stems from structural as well as proximate causes (the latter include climate-related events, floods, pest attacks etc). It becomes an unbearable burden for the peasantry, which has become systematically immiserised over centuries in the absence of alternative opportunities (in Europe and much of the developed world, industrial revolution absorbed surplus peasantry, tenant farmers and landless labourers).
Indian agriculturists (and by extension, Indian villages) are relatively much worse off today as compared to the rest of India than they were at Independence. This has occurred because the income-generating base of agriculturists, the land, has remained constant in quantity but now supports more than twice as many families as it did in 1947. The relatively low agricultural productivity has not allowed surpluses to be created for investment. There has been little transfer of resources from outside.
The defining trait of rural India today is the income deficit syndrome its inhabitants face. Income derived from the main economic activity, agriculture, is not sufficient to meet even the consumption needs of the recipient. Any farmer will tell you that he is in a no-win situation. His low production base and the poor prices he receives does not fetch him an income he considers adequate for his needs; hence the term income-deficit. What he earns does not allow him to lead a life he perceives as being of dignity. Ask any farmer if he wants to continue farming or wants his children to do so and the answer will be a thundering no, as confirmed by repeated findings of National Sample Surveys. That speaks loud and clear in any language.
The result is a trap: Current low incomes leave little by way of surplus for investments, either in productive assets, or in facilities that improve quality of life — basic housing, proper sanitation, requisite health care and most critical of all, education worth the name for the children. So, as income from farming stagnates if not declines, life becomes squalid, alternative means of livelihood get scarce and at any rate, there are no skills that qualify people for them, the next generation, more numerous, must share the same shrinking pie. That vicious circle can be summed up as “I am poor because I was born to poor parents and my children will be poorer.” Resignation sets in. Aspiration rules India, but despair reigns in Bharat.
Periodic natural adversities — floods, droughts, epidemics, all more frequent now than before — make matters, already bad, worse. The resulting loss of income makes repayment of loans incurred for various purposes, including for cultivation, hard, if not impossible. The simple truth of rural India is income deficits are cumulative, surpluses are not. The borrower seldom escapes the debt trap.
All that loan waivers do in such circumstances is, at best, to restore farmers to the unrewarding stasis, with the vicious circle and the trap still firmly in place. The distress continues, possibly gaining momentum. The real challenge of breaking that circle even while providing relief requires getting over the false sense of satisfaction such measures induce and understanding what true rural reforms entail. These will be discussed in subsequent instalments of this series.