Political Economy of Loan Waiver in India

Amidst intense farm unrests, the Maharashtra Government announced the loan waiver scheme for farmers. Following the decision, the agitating farmers called off their protests and celebrated in Maharashtra. On the other hand, small and marginal farmers from Mandsore, Madhya Pradesh are continuing their protests for a fair price. It is interesting to note that the Economic Survey 2017 endorsed Madhya Pradesh for “the incentivizing of agriculture”. Miserably, the same state witnessed the farm unrest and six farmers lost their lives. These farm protests have its roots in the longstanding ignorance and denial of the agriculture sector.

Recurring demands for loan waiver and fair prices for farm produce depicts a gloomy picture of our policy making and its effectiveness. One can say that an unprecedented agrarian crisis is looming which is intertwined with a sheer unemployment in the rural India. Echoing similar view, Indian Express reported, “At the root of Madhya Pradesh unrest, a young, jobless mob”.
In this backdrop, one can trace the history of loan waiver in India to the seventies, when Indira Gandhi was Prime Minister. India Today reported that Janardhan Poojary (the then Deputy Finance Minister in the Union Government) came up with a controversial bank loan scheme for the economically weaker section of society which comes under the 20-Point Programme. After more than one decade, the National Front Government under the leadership of V.P. Singh gave 1,000 crore rupees as a debt relief for farmers in 1990. By comparison, this waiver was more organised.

After one year, India started economic liberalisation with help from a set of policy interventions in 1991. This South Asian nation witnessed an impressive economic growth. Encouraged such macroeconomic growth, the governments were inclined towards various emerging sectors. They assumed that “India is Shining”.

In the General Budget 2008-09, the Union Finance Minister announced a debt waiver and debt relief scheme in his Budget Speech. Indian Express reported, An agreement was worked out after a meeting of  Manmohan Singh(Former Prime Minister), Chidambaram(Former Finance Minister and Y V Reddy(Former RBI Governor).  The Agricultural Debt Waiver and Debt Relief Scheme (ADWDRS) 2008 or loan waiver scheme during the United Progressive Alliance (UPA) government rekindled the demand for it.

Unveiling the mammoth loan waiver scheme for small and marginal farmers, P Chidambaram, (the then Union Finance Minister) said, “Please stand up and be counted. Are you for the farmer or against the farmer?”  In wake of drought and agrarian crisis in Vidarbha region of Maharashtra, the United Progressive Alliance (UPA) gave loan waiver farmers and it renewed the demand for loan waiver in India. Many experts authoritatively said that such populist measure allowed the UPA to retain power in the centre.

Loan Waivers in India:  

In 2014, N Chandrababu Naidu (Telugu Desam Party-TDP) and K Chandrashekar Rao (Telangana Rashtra Samithi-TRS) promised the loan waiver for farmers from their respective areas. Both of them become chief ministers of Andhra Pradesh and Telangana.As poll promise, Telangana Government waived the loan 17,000 crore loans in two installments in 2016 and 2017. (Telangana is a newly constituted state in India.) Similarly, the Andhra Pradesh Government announced a loan waiver scheme in 2016 to fulfill its electoral promise.  With 24,000 crore of the package, the Andhra Pradesh Government started implementing the crop redemption scheme despite a revenue deficit.The  Comptroller and Auditor General of India (CAG) have found several shortcomings in the implementation of crop loan waiver scheme by the Telangana Government, as reported by Business Standard -a leading business daily.

In order to highlight their plight and grievances, farmers especially small and marginal farmers are staging protests and demanding the farm relief. Financial Express reported that Manohar Lal Khattar-led Haryana government has reportedly started the process of collecting details about the outstanding farm loans, especially those, given by cooperative banks and societies.

Reaffirming the Punjab government’s commitment to waive farm loans, Captain Amarinder Singh (Punjab Chief Minister) Farmer Commission will work out modalities and give viable recommendations in two months as reported by Economic Times.

Despite a whopping agricultural production, farmers are grappling with low prices in various states. Ironically, it is evident that input cost has increased substantially and farmers are paying more for inputs like fertilisers, labours and seeds. Inconsistent monsoon and uneven rain are also worsening their condition. In wake of the proposed Goods and Tax Services Act(GST), traders are reluctant to buy food grains from farmers in states like Uttar Pradesh as Impact News reported. In this backdrop, interventions like the Minimum Support Prices (MSP) are mere “cosmetic practices”. Though, the Ministry of Agriculture and Farmers’ Welfare increases the MSP almost every year. Sorry to say that it is failed to reach to the intended beneficiaries – farmers. Disappointed farmers are putting pressure on their own governments with help from agitation.

The CAG undertook a performance audit of the Agricultural Debt Waiver and Debt Relief Scheme (ADWDRS) 2008 which was launched by the UPA government.
Major Audit Findings by CAG:
Errors of Inclusion at the Beneficiary Level
Irregular Reimbursement
Lack of Proper Documentation
Errors in Calculation of Entitlements
Irregular Claims
Issue of Debt Waiver/Relief Certificate
(Source: http://www.cag.gov.in/sites/default/files/cag_pdf/august-2015/farm-loan-waiver-scheme.html) 

A Deepening Agricultural Crisis
Recently, a huge number of farmers from Tamil Nadu staged multiple protests in Delhi. With bizarre practices of protests, they grabbed the attentions of media and others. But their demands are yet to be fulfilled.  As Mint reported, the Madras High Court ordered Tamil Nadu Government directed the Tamil Nadu Government to waive agricultural loans taken out by all farmers, irrespective of their land holding, and to ensure that no penal action or loan recovery is initiated against them.

Farm Households with Income below poverty line: 2011-12

(Source:  Doubling Farmers’ Income, NITI Aayog)

The above-mentioned graph shows a pathetic condition of farmers in India though we claim ourselves a Krishi Pradhan Desh where farmers are demanding for loan waivers and similar relaxation.

Dispelling the doubt on the loan waiver, Arun Jaitley, the Union Finance Minister, “I have already made the position clear that states which want to go in for these kinds of schemes (farm loan waivers) will have to generate them from their own resources. Beyond that, the central government has nothing more to say.”  It is a strong message to all the states which are willing to roll out such interventions. Though all gamut of issues shed light on the existing agricultural distress in India.

Ironically, Narendra Modi, Prime Minister of India promised to double the income of farmers by 2020. Consistent with such lofty promise, NITI Aayog came with a document titled Doubling Farmers’ Income in March 2017. Ramesh Chand & Team prepared this policy document. Under the Roadmap and Action Plan category, the document identified seven sources of growth: Increase in Productivity of Crops Increase in Production of Livestock Improvement in Efficiency of Input Use (Cost Saving) Increase in Crop Intensity Diversification towards High-Value Crops.

Loan waiver has a political overtone. This policy decision attracted attentions from various hues ranging from the political parties to researchers and bankers. Many of them labeled it as an electoral sop and populist measure. Since the beginning, all loan waiver schemes faced bankers’ searing criticism but the political leadership hardly paid attention to such criticism. Citing a couple of studies, they warned that the loan waiver is going to hamper the credit pattern in India. Indian farmers are in a deep trouble. The current flare-up is a cumulative result of above-mentioned reasons. The solution lies in offering sustainable ways to improve farmers’ income. Policy makers should take comprehensive follow-up measures for the loan waiver to have a lasting impact.