The politics and economics of agricultural loan waivers


This is in part due to the cumulative effect of bad monsoons. Farmers in many parts of India still depend on insufficient annual rains (with double digit rates) in 2014 and 2015; 2016 was still a good year.

The commodity cycles that push global food prices up and down are also responsible. According to the Food and Agriculture Organization (FAO), at the end of 2016, food prices were at about the same level as in 2006 (they have seen a huge increase over the decade). intermediate).

Agriculture in India remains highly regulated, with inadequate market linkages and opaque, unscientific prices. And farmers lack access and expertise in the risk management tools and techniques that can help them cope with the vagaries of nature and market shocks. Mint columnist Himanshu (he only uses one name), one of the country’s leading agricultural economists, has previously written about how India’s long decline in agriculture has forced once-dominant farming communities and prosperous such as the Jats and Patels to initiate agitations demanding reservations. in government jobs.

Disgruntled farmers worry politicians.

The National Democratic Alliance (NDA) government that ruled India between 1999 and 2004 suffered a shock defeat in the 2004 parliamentary elections due to the lingering effects of the 2002 drought (India received only 80% of the precipitation it usually receives during the southwest monsoon period that year).

And populist movements directed against farmers usually translate into substantial political dividends. The United Progressive Alliance (UPA) surprised itself and everyone else by returning to power in the 2009 parliamentary elections, largely thanks to a waiver of the Rs 70,000 crore farm loan it had. announced in 2008. This waiver and Mahatma Gandhi National Rural Employment Guarantee Program, an employment guarantee program that promised 100 days of work per year to at least one adult from every poor rural household, has helped the India through the financial crisis of 2008. The rural economy continued to shine during this period, and a broader fiscal stimulus (including a cut in indirect taxes on some products) enabled the Indian economy to experience a strong V-shaped recovery.

The growing chorus for a waiver of farm loans in Maharashtra – another once thriving farming community, the Marathas, also campaigned for student grants and job quotas – and the recent waivers of these loans announced in Tamil Nadu (around 8,000 rupees). crore) and Uttar Pradesh (approximately Rs37,000 crore) must be seen in this context.

In addition to being an effective political weapon, the waivers promise instant relief to farmers. But they punish farmers who have been diligent in making repayments and encourage all kinds of misconduct – lax credit discipline and using borrowed funds for non-farm purposes.

Mint’s view is that loan waivers are a bad idea. It was a bad idea in 2008. And it’s a bad idea in 2017.

The current NDA government is, like almost all waivers to power that came before it, centrist (and leaning to the left). Before he came to power in 2014, some thought he would be more to the right (in economic policies). This belief was not totally out of place. The third edition of the NDA which ruled India between 1999 and 2004 (before it the first ruled the country for 13 days and the second for 13 months) was a progressive right-wing government. Since 2014, however, there has been enough evidence to suggest that in terms of the broader economic agenda, the current government is no different from the one before it, although less corruption and ad -hocism.

Politically, it makes perfect sense to announce a waiver of the farm loan now, in 2017. The next legislative elections are in 2019, not too far away. From a humanitarian point of view, too, it is difficult to ignore the suffering of farmers.

Economically, however, it is difficult to argue for a loan waiver, simply because there is no case to justify. Some experts have likened them to corporate debt restructuring exercises, but the solution to the debt restructuring deals that banks are making with corporations – the country’s largest bank, the State Bank of India, has concluded. one with Kingfisher Airlines in 2012 – lies in prevention, not in offsetting by offering similar deals to farmers.

At another level, the solution to the agrarian crisis is better risk management and more efficient agricultural markets.

Of course, the current government has good ideas; he launched a new crop insurance program and also sought to create a national agricultural market, but as Mint previously reported, the former is still geared towards protecting banks that provide agricultural loans versus farmers , and the second is still in its infancy. About one in four farmers are protected, and the different national agricultural markets are not yet linked (meaning that all trade takes place within each, not between them), and powerful lobbies of traders have emerged. made sure that important commodities (called bulk) don’t worry. Still, with some tweaking, both could provide at least a partial response to the ongoing agrarian crisis.

It must be done. Loan waivers are a great stopgap, but cannot resolve the underlying issues.

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