The UP and Maharashtra governments recently announced a huge loan waiver package for their farmers.
This is not the first time a government has announced such a package nor will it be the last time. Let us look at the previous instances of farm loan waivers and how the state fared following the move.
Timeline of major farm loan waivers in India
1990: The first ever nation-wide farm loan waiver was announced in 1990 and cost the state Rs 10,000 crore.
2008: Rs 52,000 crore were released by the Indian government as part of the Agricultural Debt Waiver and Debt Relief Scheme (ADWDRS), launched in May 2008, in order to address the financial indebtedness of the farmers right before the 2009 general election.
2014: In Andhra Pradesh, a farm loan waiver of Rs 40,000 crore was announced while a Rs 20,000 crore farm loan waiver was announced in Telangana.
2017: Uttar Pradesh announced a farm loan waiver of Rs 36,000 crore. Maharashtra soon followed suit with a Rs 35,000 crore waiver, though the actual amount is expected to be much greater.
How effective are farm loan waivers?
Let us take the examples we have.
1990: As reported by India Today, a working paper by the Indian Council for Research on International Economic Relations (ICRIER) – Credit Policy for Agriculture in India – An Evaluation – says that the loan waiver scheme of VP Singh proved a costly affair for the banks and economy.
The report stated that the years after the waiver “witnessed a decline in the recovery rates by financial institutions, as farmers believed that they could default with impunity. It affected rural credit with defaults of such a high magnitude that it took the banks several years to recover from its impact … Although the scheme was implemented during 1990-91, the real impact may have been felt from November 1989 itself when various political parties started making promises that they would write off agricultural loans if they returned to power. A study has found concrete evidence that the loan recovery of PACS in Karnataka fell from 74.9 per cent in 1987-88 to 41.1 per cent in 1991-92.”
2008: The CAG audit revealed lapses and errors raising which included inaccuracy of claims to an inclusion of ineligible beneficiaries to the accuracy of claims to reimbursement of the lending institution, all ranging serious concerns about the implementation of the scheme.
- The farmers entitled to receive the benefits were not included in the list of beneficiaries by the lending institutions.
- Farmers who had taken loans for non-agricultural purposes were given benefits under the scheme.
- Loans amounting to hundreds of crores not meant be waived under this scheme were also waived off.
- No record of loan application receipts or acknowledgements from farmers confirming the receipt of the loan waivers.
- Lending institutions were responsible for implementing the scheme and also monitoring of their own work – a clear conflict of interest. The monitoring was to be done by nodal agencies, which was never in place.
- Tampering, overwriting and alternation were found with the claim records, thus creating serious doubts over the documentation.
- Commercial banks received reimbursement for loans, amounting to Rs 164.4 crores; this was extended to micro financial institutions.
- Debt waiver/relief certificates were not issued in many cases for eligible beneficiaries.
2014: The loan waiver scheme of 2008 was followed by another loan waiver of a large magnitude called “Runa Mafi”, in 2014 in Andhra Pradesh and the newly formed state of Telangana. Despite several warnings and criticism from the Reserve Bank of India and the Indian Banking Association, the scheme was rolled out in these two states. While it cost Rs.40,000 crore in Andhra Pradesh, it is expected to cost Rs. 20,000 crore in Telangana. This scheme is aimed at benefiting farmers, who suffered in the cyclone Phailin, that severely damaged crops. According to newspaper reports, Telengana has announced waiver of loans up to Rs.1 lakh to 36 lakh affected farmers.
Details of the waiver schemes in the two states are not available and it is not clear if eligibility is conditional on the extent of crop loss due to the natural calamity. However, neither loan waiver alleviated the advent of farmer suicides in the states. The National Crime Records Bureau (NCRB) data shows that while 160 farmers were reported to commit suicide in 2014 in Andhra Pradesh, the number went up to 516 in 2015. Similarly, in Telangana, farmer suicides recorded an increase of 50% in 2015 compared to 2014.
Why is it that despite the blockbuster loan waivers & the institutional lending, farmers continue to suffer?
As The Logical Indian reported before, the simple answer is – lack of accountability and lack of proper monitoring reduces the effectiveness of the loan waivers. This coupled with the fact that not all the debt is formal, reduces their effectiveness even more.
Now to the more elaborate answer. When a farmer’s loan is waived off by the bank, the chances of them getting subsequent loans from the same banks is at great risk because the farmer is now a risky borrower. Given how the farmer’s income is at the mercy of so many factors starting from the weather to the water (but most importantly the minimum support price offered by the govt. for the produce), the income is never enough to cover for the expenditure. This pushes the farmer into further debt and this time since the banks won’t offer the loans, their only option is the private money lenders.
So unless the real issues that push the farmers into debt are addressed, no matter how many loan waivers are announced they are never going to make farming and farmers sustainable.
What is the way forward?
- Not more lending institutions but better lending institutions with transparency and accountability.
- While we seem to be in a rush to go digital and go cashless, there is a greater need to bring technology closer to the farmers
- It’s time we make smart villages so they become self-reliant. In other words, the farmers should be empowered to store, process and package their produce so they can maximise their profits.
- We keep hearing how software engineers quit their jobs and turn to farming. They are able to do this because they have better access to information, technology, market and various other resources. There is no reason why the same can’t be made available to the farmers.
- More than 50% of the Indian population still depends on agriculture. This is where the real potential of “Make in India” lies.
- Land continues to be a major reason which makes or breaks the farmers. The 2013 Land Acquisition must be enforced rather than diluted.
- Obviously involving farmers in these kinds of discussions and debates will help not just formulate these policies, but also allow for a better implementation.
Farmers are not a liability, they are our assets – and they should be treated as such.
- Ex-PM Manmohan Singh Also Gave Rs 52,000 Crore Loan Waiver To Farmers, But Did It Work?
- The Solution To Farmers’ Problems Is Gathering Dust For 11 Years: Why Aren’t Govts Implementing It?