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Politics over economics of farm loans: my waiver vs your waiver

Congress’ MP, Chhattisgarh, Rajasthan to waive nearly Rs 60,000 crore; BJP-ruled UP, Maharashtra took Rs 70,000-crore hit; Niti says it’s not long-term solution.

Written by Harish Damodaran , Sunny Verma | New Delhi |
Updated: December 20, 2018 6:59:20 am
Politics over economics of farm loans: my waiver vs your waiver In April 2017, within a month of taking charge as UP Chief Minister, Yogi Adityanath announced a Rs 36,359-crore loan relief.

Keeping a party poll promise, Rajasthan on Wednesday joined the newly-elected Congress governments in Madhya Pradesh and Chhattisgarh to announce a farm loan waiver estimated to cost the state exchequer Rs 18,000 crore.

While this is in line with the Congress move to turn the spotlight on agrarian distress in the run-up to the Lok Sabha polls, it does exert competitive pressure on Prime Minister Narendra Modi and his government who five months ago told Parliament they were “not considering any loan waiver scheme for farmers”. But much before the July announcement, BJP-ruled Uttar Pradesh and Maharashtra had already announced waivers.

In April 2017, within a month of taking charge as UP Chief Minister, Yogi Adityanath announced a Rs 36,359-crore loan relief. Devendra Fadnavis followed suit in Maharashtra in June last year. He announced a waiver of Rs 30,500 crore, which has since risen to Rs 34,500 crore.

Also Read: Now, Rajasthan waives farm loans upto Rs 2 lakh

On Wednesday, responding to a question on farm loan waivers, NITI Aayog Vice Chairman Rajiv Kumar said waiver is not a long-term solution to mitigate the stress in the agriculture sector. “This is a state government (prerogative) whether you want to give a farm loan waiver, since agriculture is a state subject. And I think, therefore, the central government does not… have a view on whether the states should do it or not. They have to look at their own fiscal resources, fiscal situation to go ahead with what they want to,” he said.

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Whether good or bad — in terms of providing actual relief to distressed farmers or undermining credit discipline and discouraging further bank lending — one thing is clear: Farm loan waiver is a reality today. The question, then, reduces itself simply to whether states can afford these.

Take Chhattisgarh, which has waived Rs 6,100 crore in loans taken by farmers from cooperative and rural development banks. This is roughly 7.8 per cent of the state’s total budget size of Rs 78,623 crore for 2017-18. And with the state’s outstanding liabilities at 16.3 per cent of its gross state domestic product (GSDP) — well below the 24 per cent average for all states — the additional burden can possibly be absorbed.

farm loan waiver, rajasthan loan waiver, Rajasthan Farmers, Congress loan waiver, ashok gehlot farm loan waiver, bjp farm loan waiver, congress farm loan waiver, indian express The position is slightly better for other states that have announced waivers in the last one year or more.

It is a different ball game for most other states. The cost of the Madhya Pradesh government’s scheme — covering outstanding crop loans of up to Rs 2 lakh owed to cooperatives and nationalised banks — is estimated at between Rs 35,000 crore and Rs 38,000 crore. This is more than a fifth of the state’s total budget expenditure of Rs 164,295 crore during the last fiscal. Mobilising the monies to take over the debt of farmers and pay off banks, too, becomes more difficult for a state whose debt-GSDP ratio is already above 25 per cent.


That difficulty also explains why the waiver schemes of some states have come a cropper or been substantially watered down. The best example here is Punjab where the Congress government, in its manifesto for the polls in early February 2017, had promised to completely waive farm loans in the state. Chief Minister Captain Amarinder Singh had, then, declared that his government would take over the debt of every farmer, totaling Rs 67,000 crore, and negotiate with banks towards this objective.

As against that promise, however, the Punjab government has so far waived only Rs 1,750 crore of loans up to an amount of Rs 2 lakh each availed by marginal farmers (owning less than 2.5 acres) from cooperative banks. The state is only now about to launch a second round of waiver covering loans worth Rs 1,771 crore from commercial banks, which is again restricted only to marginal farmers. Small farmers with holdings between 2.5 and 5 acres will have to wait for their turn, probably till the middle of next year.

The reasons for this is obvious: Punjab’s estimated outstanding liabilities of Rs 196,040 crore as on March 31, 2018 account for 42.1 per cent of its GSDP. The state’s borrowing ability has been stretched beyond limits to finance any meaningful loan waivers.


The same, perhaps, goes for Rajasthan. Loans owed to nationalised and regional rural banks will be waived up to Rs 2 lakh only in the case of “economically distressed” farmers who have defaulted in making payments. Like Punjab, Rajasthan’s debt-GSDP ratio is rather high at 33 per cent to permit ambitious waivers.

The position is slightly better for other states that have announced waivers in the last one year or more. Uttar Pradesh has already implemented much of its Rs 36,359 crore waiver scheme. The sheer size of its budget allowed it to take over the debt of farmers at one go.

Karnataka has just finished the process of identification of beneficiaries and will now start distributing loan waiver certificates — probably just in time for the Lok Sabha elections. Karnataka and Maharashtra also have reasonable debt-GSDP ratios as of now, unlike Rajasthan and Punjab.

Ramesh Chand, Member, Niti Aayog and agriculture policy expert, said, “Why NITI Aayog has been opposing farm loan waivers is, if you look at the percentage of farmers who have any outstanding loans from institutional sources, it is not even 50 per cent. So, you are spending lakhs and crores of rupees and not even half of the farmers are benefiting. In some of the states, not even 25 per cent of farmers avail institutional credit. If states are doing, it is their (area), but if Centre is doing, it is helpful to pay attention to equity aspects also, that you spend so much of money and in many states not even 25 per cent of the farmers are benefiting.”
He said the Aayog did a study recently which revealed that not all farm loans are taken for agricultural purposes. “In some of the states, more than three-fourth of crop loans is used for consumption purpose and not for agriculture purpose,” he said.

The Aayog suggested providing an upfront subsidy per acre of land to farmers through direct benefit transfer instead of providing separate subsidies for fertilisers, electricity and crop insurance.

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First published on: 20-12-2018 at 04:30:36 am
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