FM Arun Jaitley Rules Out Loan Waiver To Farmers, Says States Have To Work On Their Own Capacity

Union Finance Minister Arun Jaitley on Thursday ruled out on farmer loan waivers by the Centre, in contrast to Prime Minister Modi’s poll-promise.

However, he added that states can utilise their own resources in this regard. He clarified that the Centre will not adopt a selective approach by helping one state and not the others. “This issue (loan waiver) has cropped up in several states. The Centre has its policies for agriculture sector under which we provide interest subvention and other support. We will continue to give all that.”

“If a state has its own resources and want to go ahead in that direction, it will have to find its resources. The situation where the Centre will help one state and not the others will not arise,” Jaitley said in the Rajya Sabha.

Jaitley’s announcement puts newly elected UP CM Yogi Adityanath in a spot. In BJP’s state election manifesto in the recent assembly polls, agriculture Minister Radha Mohan Singh had said that the UP government will waive off loans of small and marginal farmers.

Other states, including Maharashtra, Karnataka, Tamil Nadu and Punjab have made similar demands of farm loan waiver.

Will the Yogi Adityanath government in UP be able to live up to its poll-promise of farm loan waivers?

The Bharatiya Janata Party, which had promised waiving farm loans in its election manifesto, won a massive mandate in the UP assembly elections earlier this month. In fact, Prime Minister Modi, too, had announced at many election meetings that farm loan waiver would be the first decision by the Cabinet if the BJP comes to power in the state.

According to a recent State Bank of India report, banks will take a hit of Rs. 27,419.70 crore to waive off loans to farmers, while others estimate it anywhere between Rs. 8,500 crore and Rs. 32,000 crore.

The above figures are temporary as the state government will step in to reimburse the lenders. However, this will pose major stress on UP’s fiscal figures as small and marginal farmer loans account for more than 8% of its revenue. These farmers hold 80% of all land holdings in India.

In 2008, the UPA government had waived such farmer loans of Rs 71,000 which many believe was key for the UPA to return to power in the general elections held in 2009. However, a report by the Comptroller and Auditor General in 2013 found that of the 80,229 accounts granted debt waiver or relief, the beneficiaries in 8.5% of the cases were not eligible for either.

Is farm loan waiver the solution to farmer’s woes?

SBI chairman Arundhati Bhattacharya said last week, farm loan waivers disrupt “credit discipline” among borrowers as they expect future loans to be waived as well.

If the government waives off farmers’ loans once, they will wait for a similar waiver in the next election as well, said Bhattacharya.

Former RBI chief Raghuram Rajan had commented on the issue – “Repeated loan waivers by various state governments distort credit pricing, thereby also disrupting the credit market.” Even if the government reimburses the banks for such loans, the damage to the credit culture is irreparable.

Loan waivers are against the government’s attempt to empower farmers. The focus should be more on improving irrigation facilities so that farmers do not have to depend only on the monsoon. Developing agricultural markets and offering insurance schemes against crop failures are more progressive methods to eliminate farmer woes.

Union Budget 2017 for the agricultural sector

The budget for 2017-18 charged the apex rural bank, National Bank for Agriculture and Rural Development (NABARD), with implementing schemes to improve access to irrigation and develop the dairy sector.

“This year farmers have shown their resilience and agriculture growth is expected at 4.1%,” finance minister Arun Jaitley said in his budget speech.

To aid farmers get better value for their produce, a model law on contract farming will be circulated among states.

“For a good crop, adequate credit should be available to farmers in time. The target for agricultural credit in 2017-18 has been fixed at a record level of 10 lakh crores. We will take special efforts to ensure adequate flow of credit to the under serviced areas, the Eastern States and Jammu & Kashmir,” said Jaitley.

The farmers will also benefit from 60 days’ interest waiver in respect of their loans from the cooperative credit structure.

The launch of Fasal Bima Yojana’ will secure farmers against natural calamities – the coverage of this scheme will be increased from 30% of cropped area in 2016-17 to 40% in 2017-18 and 50% in 2018-19.

Market reforms will be undertaken and the States would be urged to denotify perishables from agricultural produce market committee. This will give opportunity to farmers to sell their produce and get better prices.