Loan waivers aren’t the right way to tackle farmers distress


NEW DELHI: The recent results of the assembly elections were a referendum on the current Modi government and farmers distress was at the top of reasons why the BJP lost the ‘Hindi heartland’.


The agricultural sector, particularly the livelihood of farmers is under heavy stress. Over the last four years, the sector has been reeling with debt; thus, affecting farmers from across the country. The recently held rally by thousands of farmers in Delhi is a stark reminder of the problem that persists. The unfortunate too often regular reminder is that of farmers committing suicides due to low incomes and crippling debt.

Economist Ashok Gulati was the Commissioner of Agriculture Costs and Prices during the UPA era and is also the Infosys Chair Professor for Agriculture at Indian Council for Research on International Economic Relations (ICRIER) pointed out that there exists a gap between government trade policies and farm policies. He said in part, “Our policies meant for farmers are actually pro-consumer policies. Price control and export restrictions have kept farmers poor”.

In the last budget, the government set aside Rs 169,000 crore for food subsidy. According to Gulati, the country has a vast buffer stock of food grains which are at 75% above the normal volume. Food subsidies will work only if they are paid directly to farmers. The introduction of the note bank and GST has also had an effect. The agricultural sector continues to contribute the most towards the GDP (16%). The application of GST on agricultural commodities will impact those who live below the subsistence level. The smaller companies who are engaged with agricultural processing will be hurt. The introduction of GST in this sector ahs encouraged stakeholders to go beyond the regular cities and create new supply chains for free movement of agricultural products within the country.

Recently, newly elected Chief Minister of Madhya Pradesh signed a large loan waiver scheme. Some economists however argue that loan waivers aren’t the right approach in tackling the farming crisis. Nilanjan Banik, Professor, Bennett University, in a column for the Financial Express writes on loan waivers – “Studies have pointed out that loan waiver programmes do not make much economic sense.During the year following loan waivers, small farmers lose out on three counts: Lesser access to formal loans, falling agricultural revenue because of higher informal loan cost, and a falling agricultural productivity”.

One of the worst hit states is Punjab. The Punjab congress government waived of debts of more than 4 lakh farmers. It is estimated that farmers in the state have outstanding debt totalling Rs.80,000 crore. In its election manifesto, the Congress had promised to waive of all loans but the eligibility criteria were brought down subsequently. 

In terms of solutions, the BJP decided to use a higher MSP and loan waivers as a mechanism to mitigate the problems plaguing farmers. The Congress too isn’t that different given Kamal Nath’s first action as Chief Minister. SBI Chairman Rajnish Kumar, in an interview to CNBC stated that loan waivers cannot be a permanent solution, saying in part, “Loan waivers are not a permanent solution. It’s not helping the past or the future.It would preferable to boost investment, helping farmers to be more productive. The income of the farmers is too low, which cannot support the debt”.

Whoever forms the next government will have their work cut for them as the sector desperately needs a fix. The MSP is a policy that needs to be looked not just in terms of increasing prices but also in terms of procurement. It would be wise for government to bring in and listen to economists and experts who are warning against loan waivers.

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