Waive this strategy
Farm loan waivers do bring respite to debt-ridden farmers. But is it the only solution?
Loan waivers cannot solve India's agro crisis
THE NEW Uttar Pradesh (UP) government has kept its promise of waiving farm loans. For a state worst-hit by demonetisation as well as multiple crop losses in recent years, the news is definitely a welcome one. Also, as the winter crop is expected to be a bumper one, farmers can hope for better conditions in the near future.
But will it be a definite turn for good in farmers’ lives? More than that, is farm waiver the only solution to the many ills that afflict Indian farmers? These are questions that need urgent probing as media reports point towards a number of state governments replicating the UP decision. In southern India, which is reeling from a severe drought, there are strong demands for farm loan waivers. The Union government is under pressure to declare a universal farm loan waiver like that of 2008. Many states are going to face elections to legislative assemblies and there will be the general election in less than 24 months. So the government is reportedly seriously examining such a waiver. If that happens, India will be doing so for the fifth time since Independence.
In the past 60 years, the clear fact that emerges is that whenever there is an agrarian crisis, governments invariably resort to loan waivers. As per conventional economics, a loan waiver is an emergency step and should be taken when the situation warrants. India is certainly witnessing such a situation in its agriculture sector. But if such a situation persists for decades, should we call it an emergency situation or a systemic failure that can be compared to a paralytic attack on the most vital economic occupation of the country? If a farm loan waiver could solve the problem or lift farmers from their strained economic situation, we wouldn’t have landed up with so many waivers. In fact, looking at the last such decision in 2008, and the current condition of farmers, it is clear that this instrument has not helped. More farmers commit suicide today than, say, in 2014. Farmers’ average debt has gone up and close to 80 per cent of farmers who committed suicides had loans pending against them, all from formal sources like banks. Between 2008 and 2016, farm credit commitment went up significantly. However, we usually approach the problem as a simple economic mess and offer even a simpler solution of just waiving the loan. Farmers’ problems are not just access to cash. Rather, it is the increasing trend of farmers opting for regular credit. One needs temporary credit to take up farm activities. But if a farmer is earning well and has assurance of sustenance, such debt burden wouldn’t have been there. So, the problem is of agriculture not being remunerative or not assuring enough to bring in a decent profit. This is not a new analysis. In fact, long ago, a committee set up by the Union government and headed by agriculture scientist M S Swaminathan recognised this situation. Let’s make farming profitable again, Swaminathan said famously. In a free market economy, profit is the tenet of existence for any occupation. So, why aren’t we looking at farm distress from this perspective? Swaminathan suggested a way out: make the government minimum support price (msp) for agricultural produce as the cost of production plus 50 per cent. This mechanism more or less sustains any mainstream business. In fact, the Bharatiya Janata Party promised this in its 2014 poll campaign. But there is no sign of that happening. Loan waiver is losing its relevance as there are no visible signs of its impact on farmers’ lives. Rather, what is needed the most now is to declare a new deal for farmers that makes farming profitable again. Or while governments pay a small price in terms of loan waiver, farmers will continue to pay with their lives. And they will certainly be not declared martyrs.