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Farm reforms need not be a lost cause

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January 19, 2022

What is the issue?

Electoral gimmicks like loan waivers push the attitudes of farmers in a wrong way.

What is the Supreme Court observation on Poor credit discipline?

  • In a lawsuit related to the dismissal of a daily-wage worker by Patiala Central Cooperative Bank the Supreme Court drew attention over an attitudinal problem in our farm sector.
  • Farm loan waivers schemes drive banks to financial distress and possible collapse.
  • No farmers were repaying the loans in anticipation of a loan waiver ahead of Punjab polls.
  • Farm sector has been strapped to the national mast of ‘food security’.
  • Many farmers expect that governments to assure the inputs as well as pay for the output. They see their role as state-appointed.

What is the history of farm loan waivers?

  • Ahead of India’s 2009 general election farm-loan waiver was declared by the Congress-led Centre worth ₹60,000 crore.
  • It was packaged as distress relief.
  • Various states run parties were quick to adopt that ploy.
  • Its lasting effect is visible in the handy tool of politics.

How it leads to poor credit discipline?

  • Farm-loan waivers been used in election manifests to win votes.
  • Overtime farmers view these as work bonuses they deserve.
  • They view it as an unstated pact with the state or as an informal social contract.
  • The loans are mistaken for grants.
  • In some states this serves as a tool for collective bargaining by tillers.
  • This approach is not only bad for lenders but also creates wrong attitudes that obstruct farm reforms.
  • Unless cultivators operate like business units rather than as state suppliers saving this sector from stagnancy will be difficult.

How it affects the Public Sector Banks?

  • Waivers leave loan books in a mess.
  • The lenders wait for state exchequers to pay the needful and also impose fiscal costs that are usually unaffordable.

What needs to done?

  • Behavioural Changes - Political parties need to avoid such pre-poll assurance of write offs. This will favour our economy for an even bigger reason.
  • The loans should not be mistaken as grants.
  • Changes in Market Mechanism - The prices set by freely-traded agricultural crops must play the reformist role of signalling scarcities and overflows
  • This will incentivize farmers to adapt their expenses and exertions to market reality.
  • Insurers and future deals could cushion their risks.
  • Farm Bills – The push for a market reforms stumbled due to failure to prepare the ground for it.
  • What was held out as freedom was seen by many farmers as a prelude to the termination of their services.
  • Rather than give up, we should reorient attitudes away from our statist system.
  • Reform-minded states should take up a model bill drafted by the Centre.
  • The provisions must be designed to secure farmers from exploitation by private buyer cartels.

 

Reference

  1. https://www.livemint.com/opinion/farm-reforms-need-not-be-a-lost-cause-in-india-1164252284587html
  2. https://timesofindia.indiatimes.com/india/eyeing-sops-punjab-farmers-arent-repaying-loans-sc-told/articleshow/88961177.cms

 

 

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