Raghuram Rajan Asks Farm Loan Waiver To Be Abolished; Says It Doesn't Reach To Those Who Need It
Former RBI governor Raghuram Rajan on December 14 said that farm loan waivers may not be a long-term solution to the farmers’ distress. He added that the agriculture sector must be made more vibrant, instead of one that needs to be “propped up through transfers”. Rajan said that he has also written to the Election Commission asking loan waivers to be taken off the table.
“Does it reach farmers who actually need it?”
Raghuram Rajan made these remarks in Delhi where he was discussing “An economic strategy for India” – a report by a group of 13 economists including him, as reported by The Hindu Business Line.
On the farm loan waiver, he said, “Certainly, there is a reason to think about farmers’ distress, but the question that flows is whether the loan waiver is the only solution. Does it reach the farmers who actually need it?”
He reiterated on the need to hold a debate on whether fiscal transfers to farmers are required. The remarks by Rajan hold special significance now as farm loan waiver forms part of the election manifestoes by every other party, as seen in the recently concluded elections of five states. He said that such loan waivers were the easiest short-term measures intended to show a political system to be pro-agriculture, while the solution should be more detailed and far-sighted. He also said that loan waivers divert resources from much-needed public investment and it puts huge fiscal pressures on the state finances.
This group of economists who wrote the report included Abhijit Banerjee, E Somanatha, Amartya Lahiri and Karthik Muralidharan, apart from Rajan himself, endorsed the Rythu Bandhu Scheme. This model of upfront cash support at the time of sowing is followed by Telangana. The only state at present to follow this scheme, under which Rs 4,000 per acre is handed out to land-owning farmers.
Incidentally, just after taking up the office, Madhya Pradesh CM Kamal Nath waived off loans of 2 lakh farmers, as reported by The Times of India. “After taking charge as chief minister, the first file I have signed is of farm loan waiver of Rs 2 lakh each, as I had promised to the farmers,” said Kamal Nath.
Education, privatisation of banks & other issues
The report by the 13 economists tackles other issues too. While deputy governor Viral Acharya has pushed for privatisation in a board meeting of the central bank, Rajan is of the opinion that privatisation cannot be the final solution to bank woes.
The group of economists also said that India’s record on Primary education is disappointing. They demanded a change in the approach to regulating private schools based on transparency and disclosure.
Other parts of the report speak about health, environment, skills female labour force participation among others, as reported by Business Standard.
Summing up the report, Rajan said, “the idea behind this report is constructive criticism. The constructive part here are suggestions to deal with what we think are fundamental problems. The idea is not to point fingers at any particular party or government, it is to identify the problems we face.”