With reports of farmers’ suicides pouring in, especially from Maharashtra and Madhya Pradesh, loan waiver to the tune of Rs 34000 crore was announced by Maharashtra State Govt. The government will waive loan up to Rs 150000 completely and the move will benefit around 89 lakhs of farmers. This was on the line of newly elected U.P. Government which waived farmers’ loan of Rs 36000 recently. This is a welcome move by the various state governments considering the alarming situation of farmers committing suicides.
The central government has informed the Supreme Court that there are around 12000 farmers committing suicides annually since 2013, half of them being land owners rest being agricultural labourers. The loan waivers will at least help the farmers overcome their financial distress in the short run and will add pace to the slow agricultural growth.
Agricultural and allied activities growth has been stagnated at around four percent for a decade. With almost 60 percent population directly or indirectly dependent on agriculture, higher growth in agriculture is warranted at present. Loan waivers by government is a temporary solution.
Financially distressed farmers is a symptom of farm crisis not a root cause of the problem. With government often resorting to loan waiving may set dangerous trends for the times to come.
There are several other aspects which should be considered before loan waiving and several alternatives are available which could provide better and long term benefits. There were reports suggesting a downfall in suicides rates after the UPA Government waived loan of Rs 40000 crore in 2008 for a short period which eventually reached the earlier level.
No correlation has been established between suicide rates and loans being waived in India in long term with past experiences.
According to a recently published report over nine years from 2008, over 88000 crore of loan has been waived benefiting 4.8 crore farmers has not affected the suicides rates in India.
The reason is explained as follows – Number of farmers with marginal landholdings i.e. below two hectares is a whopping 85%. Such farmers due to a number of reasons find it difficult to get institutional credit and mostly rely on informal sources. Such farmers are not benefitted with loan waivers. The agricultural labourers are directly dependent on the prosperity of farmers. With financially exhausted farmers agricultural labourers are bound to suffer.
There is an urgent requirement to look beyond temporary measures to overcome the farm crisis considering the economic scenario in the country. There are moral hazards related to such short term populist measures. It may lead farmers often resorting to pressurizing the government of the day for similar loan waivers.
It will even force those farmers not to repay the loans who were not defaulters earlier. Banking sector is already stressed with NPAs, such move will only worsen the situation further. Also, the Central and State governments will find it difficult to contain the fiscal deficit which over the time is above the fixed levels.
Instead of waiving loans government can put moratorium on recovery of loan for one year or so, so that the farmers can restructure his financial resources over time or loan could be waived partially with cooling down period of three years where loan would not be offered to such farmers. Instead of loans farmers should be offered more subsidies in procuring high yielding variety seeds, fertilizers etc.
Scientific guidance for better farm management is of outmost importance at present as farming is not mechanized which could substantially increase the yield. Increasing the area under irrigation would be of great help. Awareness regarding crops insurance must be high on priority list of the government. This is the right time that long term solutions is sought considering the dampen scenario in agriculture at present and the government’s target of doubling the farmers income by 2022.
By Haider Ali