States have recently been rolling out farm loan waiver schemes as a measure of immediate relief to those farmers but they will only have a limited impact. Explain. Suggest sustainable strategies to relieve farmer distress.

States have recently been rolling out farm loan waiver schemes as a measure of immediate relief to those farmers but they will only have a limited impact. Explain. Suggest sustainable strategies to relieve farmer distress.

Approach:

  • Introduce with poor stats of agriculture leading to demand for waivers
  • Explain why loan waivers will have limited impact
  • Suggest more sustainable solutions to improve farmers’ income
  • Conclude appropriately
Model Answer :

Indian agriculture is characterized by low scale, low productivity and little returns compelling farmers to take loans for both farm and non-farm purposes. This is driving them to indebtedness and distress and consequent demands for farm loan waivers. Recently a few States like UP, Maharashtra and Punjab etc have responded to farm distress by rolling out farm loan waiver schemes as a measure of immediate relief.

However, the waivers will provide limited relief to the farmers due to following reasons:

  • Covers only a tiny fraction of farmers: According to 2012-13 NSS-SAS, 48% of the agricultural households are investing from their own savings (no loans) while 39% borrowed only from non-institutional sources. They will not be eligible.
  • Partial relief: About half of the institutional borrowing of a cultivator is for non-farm purposes, and not eligible for relief.
  • Excludes agricultural labourers
  • Erodes credit culture: It severely erodes the credit culture as debtors who can repay may also not repay, with dire long-run consequences to the banking business.
  • Poor quality data: The scheme is prone to serious exclusion and inclusion errors, as was found by CAG in 2008 loan waiver scheme. Maharashtra recently detected 15 lakh fake farmers accounts applying for loan waiver.
  • Implications for other developmental expenditure: Such schemes have serious implications for other developmental expenditure which can have a much larger multiplier effect on the economy. For instance, loan waiver may cost Uttar Pradesh at least Rs. 36,000 crore, which is 4.4 times the State’s 2016-17 capital expenditure of Rs. 8,191 crore in agriculture, including irrigation and flood management.

Loan waiving can only provide a short-term relief to a limited section of farmers. It has little chance of bringing farmers out of the vicious cycle of indebtedness. What is needed are long-term sustainable solutions.

The sustainable solution to indebtedness and agrarian distress is to:

  1. Enhance access to non-farm sources of income
  2. Raise income from agricultural activities through
    • Improved technology, expansion of irrigation coverage, and crop diversification towards high-value crops
    • Getting farmers remunerative prices for farm produce by creating a liberalised environment for investment, trading and marketing.

Diverting funds to loan waivers will only deprive States of funds for capital expenditure on agriculture development. Agrarian distress and farmers’ income will be addressed much better if States undertake and sincerely implement long-pending reforms in the agriculture sector with urgency.

Subjects : Editorials

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