India is predominantly a rural economy, where 70 per cent of people still reside in villages with farming as the main source of livelihood. Over the years, it has become less remunerative due to unrelenting fall in prices of farm products and steady rise in production cost. There is crisis in the agriculture sector today due to several factors – low productivity, two successive years of drought, inadequate irrigation, collapsing farm prices, unavailability of modern technology, fragmented supply chains, lack of food processing clusters and delayed Food Corporation of India (FCI) reforms.
The government has taken several steps such as the Pradhan Mantri Fasal Bima Yojana, to provide insurance and financial support to farmers in the event of failure of crops and stabilise farm income. But the scheme hasn’t taken off because of high premium, and benefited insurance companies more than agriculturists – farmers in UP paid Rs 1,382 crore premium in 2017-18, but received a compensation of Rs 528 crore only. The government has also implemented the minimum support price (MSP) for farm produce as per the Swaminanthan formula taking into account only the costs incurred by farmer and value of family labour, instead of adopting comprehensive measure of cultivation cost that also include imputed cost of capital and rent on the land. The partial implementation of MSP and demonetisation exercise has further augmented farmer’s distress.
This anguish turned into number of farmer’s strikes, increasing suicides and demand for loan waiver and other subsidies. The commission for agriculture cost and prices (CACP) report said the biggest reason for the farmers’ suicide and distress is the rising debt and their small land holdings. The national policy for framers report 2007 suggested focus on economic well-being of farmers than just production and productivity. Others experts complemented the same and argued that half of the farmers’ problem could be solved if their debt is waived. In this direction, farmers’ loan was waived for the first time by the UPA government making it as an election agenda in 2008-09. As a result UPA stormed back into power in the elections, largely on the back of an Rs 70,000 crore farm loan waiver. Similar to the past, the present agrarian crisis has come out clearly an agenda in recently held assembly elections and waiving farmers’ loans has become the centre of political discourse. While there are several factors in election victories, the severity of the agrarian unrest was surely a major factor. The congress stuck to its pre-poll promise of waiving farmers’ loans – MP, Rajasthan and Chhattisgarh – within six hours of the swearing in of the respective chief ministers.
Just after it, Congress president Rahul Gandhi made it clear that a loan waiver would be a key issue for his party to try and corner the Modi government ahead of the 2019 Lok Sabha elections. He said, “We will not let the prime minister rest until he waives loans. Congress manifesto for 2019 would promise farm loan waiver. We will do it – guaranteed 100 per cent – if the Modi government doesn’t do it by then”. Even as the Modi government refused to consider loan waiver on a national scale, the party waived farmers’ loan in three BJP-ruled states – Maharashtra, UP and Assam. The party has also promised to write off farm loans in Odisha, if it comes to power.
This move may have helped the political parties, but it would have a serious impact on the economy, states’ finances and farmers. First, farm loans, benefits no more than 15-20 per cent of farmers because the others remain outside the institutional lending system and depend on moneylenders instead.
Second, such fiscal extravagance puts severe restrictions on governments to invest in other more important long-term benefits areas like building irrigation and other infrastructure. According to the Reserve Bank of India (RBI), 17 states are in huge debt and as per rule the state can’t take loan more than 3 per cent of its gross domestic product. Most of the less developed states like UP (5.6 per cent), Rajasthan (10 per cent), Bihar (6.9 per cent), and MP (3.9 per cent) have crossed the debt limit. So, it is obvious that they have to cut the budget of other developmental activities to adjust the amount of waiving farmers’ loans.
Third, experience suggests that waiver of farm loans at regular intervals encourages a section of farmers to become defaulters even as genuine farmers who repay loans suffer like in 2008-09; only defaulters got the benefits. Due to the habit and pressure, governments are waiving the farmers’ loan, where it would be difficult to bring the habit to return the loan. That is why the Niti Aayog and the RBI are against this step.
Today, the most important issue for the farming community is to raise their income from agriculture by bringing every farmer into the formal banking system to release them from the grip of money lenders; fixing the MSP carefully as per Swaminanthan recommendations; augmenting irrigation potential to reduce the dependence on rains; putting in place enough storage facilities to make sure farm products don’t rot and go waste; creating adequate and effective marketing avenues for farmers to get remunerative prices for their products.
This short-lived – loan waiver – is just a political gimmick without any long-term gain to farmers and economy. The need of the hour is to focus on boosting agricultural productivity, ensuring farmers receive remunerative prices of their products, and creating of non-farm jobs, as the farming sector cannot possibly support all those engaged in farming today.
(The writer is ‘fellow’ at Institute for Human Development, Delhi)