Avoid Farm Loan Waivers: RBI's Internal Working Group

Mumbai: An internal working group (IWG) of the Reserve Bank of India on agricultural credit has recommended the Central and state governments to avoid farm loan waivers.

According to the report of the 'Internal Working Group to Review Agricultural Credit', Central and state governments should undertake a holistic review of the agricultural policies and their implementations, as well as evaluate the effectiveness of the current subsidy policies.

"The IWG recommends that Government of India and state governments should undertake a holistic review of the agricultural policies and their implementation, as well as evaluate the effectiveness of the current subsidy policies with regard to agri inputs and credit in a manner which will improve the overall viability of agriculture in a sustainable manner," the IWG report said.

"In view of the above stated, loan waivers should be avoided," it said.

The report said that loan waivers, which often happen at the time of elections, are not the panacea to address the underlying risks.

"In fact, they (loan waivers) destroy the credit culture which may harm the farmers' interest in the medium to long term and also squeeze the fiscal space of governments to increase productive investment in agriculture infrastructure," it said.

On interest subvention scheme for short-term farm loans, the IWG recommended that it should be replaced with direct benefit transfer (DBT) to targeted beneficiaries.

The Central government had introduced the interest subvention scheme for
short-term crop loans in 2006-07.