Op-Ed: NITI Aayog is right: Farm loan waiver is indeed a ‘palliative’

It is competitive populism at its worst. After the newly elected Congress governments in the heartland states of Madhya Pradesh, Rajasthan and Chhattisgarh announced waiver of farm loans, every political party is now jumping on to the waiver bandwagon.

At the national level, the Modi government, which had resisted all pressures to write off agricultural loans so far, is busy drawing up plans for doing just that so as not to give a handle to a resurgent Congress to beat it with in the run up to the 2019 general elections. But the BJP’s position on the issue has been marked by hypocrisy. Even as the BJP led Modi government at the Centre refused to consider loan waiver on a national scale, the party wrote off loans amounting to Rs. 36, 000 crores and Rs. 34, 000 crores in Uttar Pradesh and Maharastra respectively without batting a eyelid. On his part, Congress President Rahul Gandhi, has said his party would not allow the central government ‘to sleep’ till it waived all farm loans. Flush with the electoral success in the three states, the Gnadhi scion obviously believes he has found an issue that would win his party an electoral jackpot – just as it did in these three states – in the Lok Sabha elections.

Closer home, PCC President Niranjan Patnaik has taken this game of one-upmanship a notch higher by announcing that his party would waive farm loans ‘within five hours’ of assuming office! The Congress gambit has forced the BJP to announce it would waive farm loans too. Not to be left behind, even the ruling BJD, which had remained non-committal on the issue for so long, has now been forced to rethink its position. The Naveen Patnaik government’s bluff was called when the Baghel government in neighbouring Chhattisgarh not only waived farm loans worth Rs. 6, 000 crores, but also announced a bonus of Rs. 750 per quintal of paddy that would raise its minimum support price (MSP) to Rs. 2500. It foiled the state government’s plans to lay the blame squarely on the Centre for its failure to honour the unanimous resolution passed in the Assembly seeking a hike of MSP on paddy to Rs. 2930 per quintal without doing anything to address farm distress in the state.

But does waiver of loans actually address the issue of farm distress? Does it really help farmers? Will it end farmer suicides in the country? I am no economist or agricultural scientist. But the little that I know about the issue has convinced me that the answer to all these questions is a resounding ‘No’. And there are three basic reasons for my belief. First, farm loans, as many experts have pointed out, benefits no more than 15-20% of farmers because the others remain outside the institutional lending system and depend on money lenders instead. This is truer for Odisha, where banking operations are yet to reach the hinterland, than it is in the rest of the country. Second, such fiscal profligacy puts severe restrictions on governments to invest in other more important areas like irrigation and creating marketing avenues to make agriculture sustainable in the long run. To put things in perspective, the waiver of farm loans worth Rs. 34, 000 crores by the new government in MP is only marginally lower than the total budgeted expenditure of Rs. 37, 000 crores for agriculture for the whole 2018-19 fiscal year! Needless to say, the MP government would have to siphon off funds earmarked for other sectors in the budget to finance its spend in the farm sector. Third, experience suggests that waiver of farm loans at regular intervals encourages a section of farmers to become willful defaulters even as genuine farmers who repay loans suffer. As agriculture expert Jagadish Pradhan has pointed out, the point to note about the farm loan waiver in MP is that they relate to loans taken before March 31, 2018. In other words, those who repaid their loans and availed fresh loans after March will feel cheated when they come to know that the waiver would only benefit the defaulters, willful or otherwise. On the other hand, it would encourage defaulters to avail fresh loans, secure in the knowledge that it would be waived in future, without any intention of repaying them!

Some people have sought to paint everyone opposing waiver of farm loans as ‘anti-farmer’ by positing the issue with the waiver of corporate loans worth several lakh crores by the Central government every year. My own take on the issue is: if waiver of farm loans is a mistake, writing off corporate loans is a Himalayan blunder and downright criminal! It encourages the likes of Nirav Modi and Vijay Mallya to make merry at the expense of the exchequer and helps the likes of Ambanis and Adanis to expand their business empires – again at state expense. Hence, let us not seek to justify one wrong with another bigger wrong.

Everyone – even an ignoramus like this columnist – knows the long term solution to the problem of farm distress: raising income from agriculture. Everyone also knows how to achieve this: bringing every farmer into the formal banking system to release them from the vice-like grip of money lenders; augmenting irrigation potential to reduce the dependence on rains; putting in place enough storage facilities to make sure farm products don’t rot and go waste; creating adequate and effective marketing avenues for farmers to get remunerative prices for their produce and so on. But all these measures would need painstaking work at the ground level – something that governments of all hues are terribly reluctant to do. They would rather indulge periodically in political gimmicks like loan waiver, which would fetch rich electoral dividends without demanding any hard work on their part.

(DISCLAIMER: This is an opinion piece. The views expressed are author’s own and have nothing to do with OTV’s charter or views. OTV does not assume any responsibility or liability for the same)