By Moin Qazi
A resurgence of farm loan waiver culture in the Indian polity has got many economists and policy makers worried. In a country where bulk of the farm land is rain-fed, the need to offer some relief to a drought-hit farmer is real. It is an acknowledged fact that loan waivers are a wrong practice and have several inimical long term implications. They punish farmers who have been diligent with repayments and encourage errant behavior among recalcitrant borrowers —lax credit discipline and the use of borrowed funds for non-agricultural purpose.
The debt forgiveness in Tamil Nadu and Uttar Pradesh led to a growing chorus for a waiver of agricultural loans in Maharashtra. With Maharashtra also joining the farm loan waiver bandwagon, various State governments are expected to waive off $40 billion of farmers’ loans in the run-up to the 2019 general elections in the country, a global banking group has said.
Farm loan waivers will amount to 2 per cent of gross domestic product (GDP) by the 2019 polls, as other States are also likely to follow the BJP’s Maharashtra and UP governments, according to a Bank of America Merrill Lynch (BofA-ML) report.
Ashok Gulati, an agriculture specialist at the Indian Council for Research on International Economic Relations argues that this can spread like a contagious disease to most parts of the country and you will very soon see at least 3-4 States announcing similar farm loan waivers,
Loan waivers are both ‘bad politics’ and ‘bad economics’. Loan waivers have an insignificant role in ending the current abysmal situation. In a sense, loan waivers recite a story of unfinished reforms in India. The question should be why almost 55% of the population produces just 17% of agricultural output. Unless this share of the population is empowered, loan waivers will remain an unsuccessful recourse.
Indebtedness is the most acute problem faced by small and marginal farmers. However, they mostly borrow from moneylenders and hence a loan waiver does not serve their cause. Affluent farmers are the real beneficiaries of such populist policies. The problems faced by destitute farmers are complex and require a strong political will to address them. Their landholdings are below the economically viable threshold, thus resulting in recurrence of bad loans. Waivers can do little to end these deplorable conditions.
Frequent debt waivers may push banks to invest in alternatives to farm lending such as the Rural Infrastructure Development Fund instead of reaching out to individual farmers to meet their agriculture demands. This may indirectly boost the mushrooming of unscrupulous moneylenders.
Bankers mourn over large sums being invested only to buy seeds or fertilizers, rather than to invest in mechanisation. India is the world’s second-largest producer of rice, wheat, cotton, and sugar. However, its productivity is well below the world average. Bankers stand and watch helplessly as there is a surge in the number of ‘wilful’ defaults among borrowers. Funds of agriculture end loans are diverted instead to marry off daughters, to become lenders themselves, build extensions for their farmhouses or to splurge on social occasions.
Farmers openly admit that the government knows they will sanction more loans and fall into the same trap again and will withhold repayment of these loans, waiting for the next election in hopes of a loan waiver. “The government knows we will take out more loans in the end and fall in the same trap again and will withhold repayment of these loans too waiting for the next election for the loan to be waived ,” said Vital Mhaski, a cotton farmer in Maharashtra who is Rs 77,000 in debt. Some of India’s 263 million farmers have decided not to repay their debts, expecting loan waivers to mean they don’t have to.
The problems of small farmers are complex and require a steely political will to be properly addressed. Their landholdings are below the threshold that is economically viable. The result is a cycle of bad loans and bad harvests following poor rainfall. Loan waivers have little role in ending the conditions that lead to such problems. Farming accounts for a mere 14% of India’s GDP, much lower than 47% of GDP just after India’s independence 70 years ago.
While the global average of landholding size is 5.5 hectares, the per capita availability of land in India from 1951 to 2011 declined by 70%, from 0.5 hectares to 0.15 hectares. In a sense, this is a story of unfinished reforms in India. The question should be why almost 55% of the population produces just 17% of agricultural output. Unless this huge swathe of the population is empowered, loan waivers will remain a recurring feature of the landscape.
The causes of farmers woes have been consistently documented, but nobody wants to fix them: the tired soil, the high-cost seeds; the thirsty crops; the bone-dry skies, the sinking bore-wells, the increasing amounts of fertilizer to rejuvenate the land, pesticides, labour costs, the dowries, the mouths to feed, the debt, the women, the shame.
To improve their standard of living, farmers need to go beyond agriculture and enter the manufacturing or services sector. Most small-scale farmers would happily sell their land, if only they could be provided employment in its place. India’s developmental failure since 1947 has been its inability to relocate people involved in agriculture to other industries and services. As the share of agriculture in the national output pie falls, any crisis hurts those dependent on it gravely.
A sense of deep despair runs through the lives of farmers in India. They have lost all hope – and also the will to fight. An increasing number have opted for permanent escape from their physical and emotional pain by ingesting deadly pesticides.
According to the 70th Situation of Agricultural Households in India conducted by National Sample Survey Office (NSSO), 90% of India’s farmers have less than two hectares of land. The survey says the average farm household makes less than Rs. 6,500 a month from all sources of income and they’re only kept afloat by government schemes that funnel money to them and by periodic waivers of farm loans.
To improve their lives, farmers need a way out of agriculture and into the manufacturing or services sector. In fact most small-scale farmers would happily sell their land, if only they could be provided employment in lieu of it. India’s developmental failure since 1947 has been its inability to move the huge mass of people involved in agriculture to industry and services.
More than seven decades after independence, India does not have a national agriculture policy. There is a need for an integrated approach – one that addresses source sustainability, land use management, agricultural strategies, demand management and the distribution and pricing of water. Compartmentalized responses are unlikely to be adequate to address the current crises.
A longer-term strategy would be to make farming steadily profitable. This would involve proper irrigation and water conservation, better market information and access for farmers, and the development of agro-industries. The decisions and actions that the country’s leadership takes – or fails to take – now may shape the future not only of India’s agriculture but its polity as well.—INFA