The utility of farm loan waivers is under debate now after Congress decided to write off short-term farm loans in Madhya Pradesh, Chhattisgarh, and Rajasthan.
Here are two routes that the Union or state governments can consider to help farmers.
Loan waivers for farmers has become one of the hotly debated topics these days. The issue has come more into focus after the conclusion of elections to Madhya Pradesh, Chhattisgarh, and Rajasthan, where the Bharatiya Janata Party (BJP) lost power. The move has its takers and opponents.
The issue has been flagged by the Congress’ move to write off short-term farm loans in all three states. The waiver has also brought to the fore the dangers that such a move could cause to fiscal federalism. Some experts point to history to say loan waivers have resulted in little benefit for farmers.
The 2008 farm loan waiver of the United Progress Alliance (UPA) government led by Manmohan Singh is an example from the recent past. The waiver hasn’t improved the lot of Indian farmers. The other problem for agriculture in the country is that most of the farmers hold less than a hectare, which prevents any economies of scale.
With the Lok Sabha election scheduled within six months and a few more states set to go the hustings within a year, the problems faced by farmers assume importance. Finance Minister Arun Jaitley in an interview to All India Radio has said states that have the fiscal space can go in for farm loan waivers.
The Finance Minister, however, dodged a question about a farm loan waiver at the national level, saying states can go ahead if they have the wherewithal. The other aspect that Jaitley mentioned – and which cannot be denied – is how the current government has improved the quality of life for the rural masses by giving them houses, toilets, electricity, roads, and cooking gas connections.
Governments, at the centre or states, have two options. The first one is what the State Bank of India’s Ecowrap (SBIE) report has suggested.
SBIE says governments can either borrow from the market or reduce their capital expenditure. Given that the cumulative outgo of the farm loan waiver announced by Madhya Pradesh, Chhattisgarh, Rajasthan, Assam, and Karnataka will be spending Rs 78,453 crore in farm loan waivers, they will have that much less to spend as capital expenditure. They, however, will have some leeway if they come up with measures to increase their revenue.
But such measures can’t be taken to meet the needs in one year and, hence, have to be spread over a period of time like, say, five years. For example, the Tamil Nadu government had waived off farm loans in 2016 and has since been making provisions in its budget, especially in allocations for the cooperative sector.
SBIE suggests that kisan credit cards and crop loans for agriculture be treated at a par with non-performing assets (NPA) classification for other sectors. This will help banks save their capital that would otherwise have to be marked for offsetting the NPAs.
The fourteenth Finance Commission has stipulated that states’ fiscal deficit cannot exceed 3 per cent of their GDSP (gross state domestic product). But these states can be allowed to borrow from the market provided they meet the sufficient (SC) and necessary criteria (NC) or conditions of fiscal prudence.
NC requires states to have zero revenue deficit in the year for which borrowing limit is fixed and the previous year, too. SC requires states’ debt-GDSP ratio to be 25 per cent or lower than the preceding year, while interest payments should be equal or lower than 10 per cent of their revenue receipts.
In these circumstances, only seven states can qualify to raise an additional 0.5 per cent in addition to the 3 per cent as market borrowing, satisfying both NC and SC conditions. These are: Bihar, Chattisgarh, Jharkhand, Karnataka, Madhya Pradesh, Telangana, and Odisha.
Gujarat can raise an additional 0.25 per cent since it satisfies one of the SC conditions. Again, of the eight states, Bihar and Odisha have availed this facility last fiscal.
For this fiscal, 10 states have some room to raise market borrowings by 0.25 to 0.5 per cent of their GDSP. Odisha, Chhattisgarh, and Karnataka have additional room of 0.5 per cent, whereas Gujarat, Jharkhand, Jammu and Kashmir, Telangana, Himachal Pradesh, Madhya Pradesh, and Goa can raise up to 0.25 per cent.
SBIE sees aligning NPA norms for farm loans at par with industrial loans as the way forward so that banks’ capitals are not locked to make provisions for these outstanding dues.
The other way to try and help farmers is to look at the Telangana example of working an alternative to loan waivers. The Telangana government, from this year, provides Rs 4,000 as financial assistance to farmers per acre per season. This means, farmers get Rs 8,000 a year per acre as assistance.
The Telangana government has allocated Rs 12,000 crore in its budget for this scheme. Some 58 lakh farmers have benefited from this scheme called Rythu Bandhu Scheme. There are, however, some grievances, too.
The scheme covers only farmers who own lands and not tenant cultivators. There are at least 15 lakh tenant cultivators in Telangana who have been left out of this scheme.
The K Chandrashekar Rao government, before going ahead with the scheme, did some home work by rectifying land records in 10,500 revenue villages. The Odisha government has now improved on this by including households that do not have lands. What can the centre or other states do?
Perhaps they can look at this scheme to help farmers. For example, nearly 4.2 crore farmers had availed of the loan waiver scheme in 2008. If these farmers are to be paid, say, Rs 10,000 every year, the outgo to the exchequer on this will be Rs 42,000 crore a year.
The UPA government spent Rs 52,000 crore on loan waivers, but a finding by the Comptroller and Auditor General (CAG) showed that irregularities to the tune of over Rs 10,000 crore took place. Leaving the controversy aside, let’s look at what the government gives the farmers in the form of subsidies every year.
In the budget for the current fiscal, the centre has allocated Rs 13,000 crore for the crop insurance scheme, Rs 15,000 for interest subsidy towards short-term credit to farmers, Rs 45,000 crore as urea subsidy, Rs 25,090 crore as nutrient subsidy, besides a host of other small subsidies.
All these subsidies are paid after the farmer spends his money, and sometimes, the payments are delayed. The Union and state governments will probably have to think of an income support scheme similar to the ones in Telangana and Odisha.
The payment could be a paltry Rs 5,000 to Rs 7,500 per acre per season instead of the subsidies for which allocations have been made in the budget. That will leave the farmers well-prepared to go for their choice of crop besides taking care of crop protection and nutrients.
A break has to be made from the past and history. Probably, the time is now. Aadhaar card details can come in handy for this purpose and it could help in launching such a scheme immediately, though one is not sure how smoothly.