Farm loan waiver

• Rajasthan government has announced one-time farm loan waiver of up to Rs50,000 for small and marginal farmers in the state, which would cost Rs8,000 crore to the exchequer.
• The government has also announced setting up a farmer loan relief commission where farmers can approach and present their side for getting relief on merit basis.
• In India, farm loan waivers have been announced intermittently by both the central and state governments to provide relief to farmers facing distress due to natural calamities/crop failure.
• According to a 2017 report by the RBI, farm loan waiver amounting to Rs 88,000 crore likely to be released in 2017-18 by seven states, including Uttar Pradesh and Maharashtra, may push inflation on permanent basis by 0.2%.

Analysis:

• Loan waiver has not helped the farmers. It is a relief only for one season with the farmers going back to grind in the next. Giving such sop is also not economically viable as it reduces government’s fiscal power to intervene when needed the most.
• There is increase in loan repayment default after the Central government announced farm loan waiver of Rs 60,000 crore in 2008, a year before general election. Honest farmers repaying the loan also turned defaulters after the waiver. 2015 ICRIER paper said the
• A massive write-off of loans in 2008 took its toll on the banks, increasing the non-performing assets of commercial banks threefold between 2009-10 and 2012-13.
• The real crisis for Indian farmer is that he or she is not in control of the produce, unlike other businesses, and is dependent on cartel of traders to fetch a decent price. The cartel makes money in case of good or bad crop season as their margins remain intact . In fact, in case of a crop failure the trader profit margin rises whereas the farmer is in distress without remunerative price.
• The governments --- Centre and states --- have repeatedly failed to break the cartelisation and their effort to create farm infrastructure through cold stores has helped the corporate sector more than the farmers.
• Except some farmers in Maharashtra and Punjab, most of the cold stores built with help of the government subsidy are owned by corporates. So, now these corporates are buying produce in farms at cheap rates, keep them in cold stores, repackage them and sell them in malls in cities at thrice the purchase price. Neither the farmer gains nor the consumer.

By: Vishal