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LATEST NEWS UPDATES | Agrarian distress: Income support to farmers better option than loan waivers -Soumya Kanti Ghosh

Agrarian distress: Income support to farmers better option than loan waivers -Soumya Kanti Ghosh

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published Published on Dec 16, 2018   modified Modified on Dec 16, 2018
-Financial Express

Income support for farm households may be a worse solution than freeing up agri trade and marketing, but it should work much better than loan waivers.

When the new MSP regime was implemented in July, one of the common fears in the market was that the hikes would stoke inflation fears. Four months down the line, not only does this fear seems to have subsided, but serious concerns are now being raised over the continued decline in food prices. Food inflation in rural areas at an all-India level has been consistently declining and stood at 1.9% in FY19 (till November) as against 5.4% in FY15. While such decline/low single-digit inflation in food prices are a boon for consumers, it is bad news for farmers.

Interestingly, one common thread that runs in the states of Chhattisgarh, Madhya Pradesh and Rajasthan, besides the elections that just concluded, is the continuous decline in rural food and beverages prices. For Chhattisgarh, the average decline in food prices in post MSP/Aug-Nov period was 3.3%, for Madhya Pradesh 0.38% and for Rajasthan 2.2%. Maharashtra, Andhra Pradesh, Jharkhand and Haryana, the major agricultural states which are due for election next year, are also seeing declining food and beverages prices. It now seems that the AASHA procurement scheme has not taken off significantly (agriculture, though, is a state subject), resulting in farmers just not getting remunerative prices for their crops.

A logical corollary of the above is debt waivers for farmers that have now been promised in all the states where elections recently concluded. Several states have already announced loan waivers, taking the total of loan waiver to `1.2 lakh crore since 2017—the implementation of this is still underway. Among the states which are due for election next year, Andhra Pradesh, Haryana and Odisha, have a fair share of agri credit. Even if these states individually announce debt relief, the incremental debt waiver over and above Rs 1.2 lakh crore could be a frightening figure.

However, such waivers are not the solution as they are a drag on credit discipline. Our analysis of agri-NPAs (as % of agriculture advances) for the Sep’18, Jun’18 and Mar’18 quarters for select banks revealed that almost all the major banks have registered increase in agri-NPAs in Sep’18 or are at the same level as Jun’18 quarter. It is most likely that such figures might stay elevated in the Q3FY19, as loan waivers have been promised in three of the five states where elections were held recently. Our fear is that, if a remedy is not found quickly, waivers will continue to be the order of the day in most of the states going to elections in 2019.

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Financial Express, 14 December, 2018, https://www.financialexpress.com/opinion/explained-how-income-support-can-help-address-rural-distress/1413430/


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