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Farm loan waiver

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March 29, 2017

Why in news?

The BJP had promised to waive off loans of small and marginalised farmers in Uttar Pradesh in its 2017 poll manifesto,.

What is the issue?

  • Reserve Bank of India Deputy Governor and State Bank of India Chairman expressed their reservations over waiving crop loans due from small and marginal farmers in Uttar Pradesh.
  • According to an SBI assessment, waiver will lead to writing off over Rs.27,400 crore, or a third of the outstanding credit to agriculture in the State of over Rs.86,000 crore.
  • What is worse is that the government in Maharashtra is under pressure to do the same.
  • Loan waivers create a moral hazard by effectively punishing those who repay their loans.
  • Loan waiver scheme of 2008 did not work entirely to the advantage of small and marginal farmers, with the CAG later expressing proving the point.
  • However, it must also be remembered that credit restructuring to industry has also entailed generous ‘haircuts’ on the outstanding amount often away from the public glare.
  • In dealing with the burden of NPAs, RBI Governor said rather than populist there is a necessity for being become pragmatic.
  • Hence, an attempt can be made to restructure bad farm loans (particularly in regions where farmers’ suicides have taken place), as in the case of industry, before writing them off.
  • However, in the medium term, crop insurance should emerge as the main vehicle to cope with rural distress.
  • The sudden stress on waivers, which runs contrary to the Pradhan Mantri Fasal Bima Yojana, points to an unwillingness to confront the real issues in agriculture.

What is the way forward?

  • Recent governments have increasingly focused on ramping up agricultural credit instead of improving the institutions in this regard.
  • These include strengthening rural credit cooperatives, making them more publicly managed rather than government-controlled, so that they emerge as alternatives to informal sources of credit.
  • The SHGs could act as source of credit, but should not be burdened with onerous credit targets, as in the past.
  • Jan Dhan accounts can arrest the trend towards informalisation of credit, provided the emerging banking systems and technologies work to the advantage of the farmers.
  • Finally, agriculture needs better technologies to improve yields and combat the vagaries of rainfall and temperature, and better prices for its produce.

 

Source: The Indian Express, Business Line

 

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