Opinion A stopgap

On Tuesday, the Uttar Pradesh government waived the loans of about 94 lakh small and marginal farmers in the state. On the same day, the farm loan waiver scheme was blessed by the judiciary with the Madras High Court directing the Tamil Nadu government to extend its  benefit, originally meant for small and marginal farmers, to all agriculturists in the state. While the UP order will apply to both commercial and cooperative banks in the state, the Madras High Court directive pertains to only cooperative banks. There is no denying that the agrarian distress in different parts of the country calls for urgent and immediate relief to farmers. But governments have been resorting to measures such as loan waivers without paying serious attention to the underlying crisis they seek to mitigate. They don’t care to ask: What pushes the farmer into a debt trap in the first place? Governments also give short shrift to the fact that loan waiver schemes are not good for the health of banks.

The UP government’s measure will entail a fiscal cost of Rs 36,359 crore while the Tamil Nadu government will have to fork out nearly Rs 2,000 crore to compensate cooperative banks in the state. A number of studies have pointed to the real problems that the loan waiver will not address: Most farmers do not earn enough from agriculture to meet even their essential consumption expenditures, leave alone those on education, healthcare, marriage and other social obligations for which they are often forced to borrow from private moneylenders. In its manifesto in the 2014 general election, the BJP had promised to ensure farmers a 50 per cent return over their production costs across crops. Subsequently, the Prime Minister made a call to double farm incomes by 2022. But all this now stands to be subsumed by the focus on loan waiver that makes for short-term populism, as opposed to investments that help boost productivity and incomes in the long term.

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Loan waivers, at best, provide temporary relief and liquidity to farmers. But that liquidity is better provided through an efficient crop insurance system. In this respect, the Pradhan Mantri Fasal Bima Yojana is a good start, even though it has been riddled with implementation glitches. The government has not pressed modern technology into service — satellite imagery, GPS devices, drones — to assess farmers’ damages and settle insurance claims speedily. Instead, there is now a going back to the 20th century formula of loan waivers that could have a cascading effect and open a fiscal Pandora’s Box. Already, the Shiv Sena has demanded that the Maharashtra government must emulate UP. Others, from Punjab to Karnataka, are also bound to follow. And long-term solutions to farmers problems will get further delayed.