Farm Loan Waivers: Will They Be Any Different Under Modi, Adityanath And Fadnavis?

When the Yogi Adityanath government waived farm loans for small and marginal farmers in Uttar Pradesh, he not only honoured Prime Minister Narendra Modi's poll promise but he also walked a path well trodden by India's political class.

In 1990, the V P Singh government at the Centre announced a loan write-off of Rs 10,000 crore. The great economist Manmohan Singh's government announced an 'Agricultural Debt Waiver and Debt Relief Scheme of 2008' under which about Rs 52,516 crore were spent until 2011-12, according a report by ICRIER. In 1987, Devi Lal government in Haryana announced Rs 240 crore scheme to write off farm loans. Tamil Nadu has a long history of writing off farm loans. In 1996, M Karunanidhi announced a scheme, the cost of which rose to Rs 256 crore which was borne by his successor, J Jayalalitha’s government. Again in 2004, the Karunanidhi government waived off farm loans worth Rs 6,866 crore. In 2014, Telangana and Andhra Pradesh announced loan waivers of Rs 20,000 crore and Rs 43,000 crore respectively.

UP's more than Rs 36,000 crore (estimates of loan bill vary depending on how the scheme is worked out) farm loan waiver package does look big. Union Finance Minister Arun Jaitley has already washed his hands off by declaring that the Centre cannot make an exception for UP, and that the state government will have to generate resources to fund the scheme. In Maharashtra, the 'opposition' including Shiv Sena have effectively gheraoed Chief Minister Devendra Fadnavis demanding loan waiver for the farmers in the state. He may well concede it.

Governments have found it difficult to implement the waiver schemes – both financially and administratively. Many schemes had to be rolled over for several years.

Let’s say that a national policy is designed to waive all farm loans at one go so that the farm sector can start on a clean slate, it may cost some lakhs of crores of rupees. Though a big amount, it is not impossible for India to finance it. If it helps farmers, it can be done, it must be done.

When farmers find it difficult to repay a Rs 1 lakh loan, it tells us how difficult it must be to live on farming. Compare this with the thousands of crores of loans which big and powerful businessmen like Vijay Mallya don't pay back – and the argument for farm loan waiver does become very powerful.

Unfortunately, waivers don't help small farmers. They, at best, are palliatives that push farmers into dependency on moneylenders with higher interest rates since banks wouldn't lend them again easily. Farmers, as a result, get pushed deeper into debt trap leading to suicides.

Waiving off farm loans helps win elections – almost all the above loan waiver schemes were announced as poll promises and all helped parties win in elections. But they didn't help farming as NSSO Data points out. What it says, in effect, is that a good part of rural loans are for non-farming purposes (wedding and household expenses), although they were classified as agricultural loans. Anecdotal information supports this. (Also, read this )

Despite a series of farm loan waivers and other policies that successive governments have announced for agricultural sector, and despite the green revolution of 1970s, the sector continues to hobble facing rain and middlemen dependency which have only worsened.

Huge amount of public resources have been sunk ostensibly to help farmers, but farmer suicides continue unabated. Other than Fadnavis' ambitious Jalayukta Shivar scheme, India's water management regime shows no fresh approach. National Agricultural Market is yet to make a mark when it comes to the vice-like grip of APMC mandis. State laws perpetuate farmers' dependency on middlemen.

As seen above, India's political economy is such that it has become impossible to wean small and marginal farmers off a meagre government support and dependency on money lenders. It has become impossible to set them free from politically powerful middlemen. It appears that India's politicians have a perverse incentive to keep things as they are. With BJP welcoming 'winnable' leaders from Congress, Nationalist Congress Party and other parties all over India, things don't look good because many of them are those very powerful middlemen.

Given that farm loan waivers are a reality, a lot depends on design and execution of these schemes.

Wait, but where is NITI Aayog in all this? A report by Niti Aayog says:

It goes on to say that:

Shouldn't the NITI Aayog suggest a better design and administration of farm loan waivers? This may be round the corner. But given NITI Aayog's hedging above, one wonders whether it will do justice to the important task. Its patchy track record doesn't inspire confidence.

It is said that Prime Minister Modi is not in favour of doles and that he works to help people help themselves. He also has earned a well-deserved reputation of doing things differently even when executing United Progressive Alliance government's schemes. Let's hope that agricultural sector in general and farm loan waiver in particular aren't exceptions to this.

Let's hope that Modi's choice, Yogi Adityanath, shows acumen and speed in design and implementation of his scheme so that come next elections, there isn't a need to promise another round of loan waivers.