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LATEST NEWS UPDATES | Empty promises to farmers in distress -PSM Rao

Empty promises to farmers in distress -PSM Rao

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published Published on Dec 26, 2014   modified Modified on Dec 26, 2014
-The Hindu Business Line

Both Andhra Pradesh and Telangana have reneged on loan waiver promises.

When Messrs Chandrababu Naidu and K Chandrasekhar Rao, chief ministers of Andhra Pradesh and Telangana respectively, promised to waive farm loans, there was no reason to distrust them.

The Election Commission clearly directed the politicians not to make any promises that could not be implemented. They thought all the farm loans would be written off once they formed their respective governments.

But that was not to be. After a lot of dithering, the Andhra Pradesh government has made a paltry allocation of 5,000 crore against its conservatively estimated requirement of 45,000 crore, while its Telangana counterpart released 4,250 crore - the first of four annual tranches - against 17,000 crore that are needed.

When the governments could not hide the fact that the loan waiver was beyond their means, they tried three things to wriggle out of their promise.

One, they found excuses for non-implementation, such as unfairly blaming the banks and the Reserve Bank of India for their non-cooperation. After all, banks are the institutions that accept deposits from the public to lend to the needy. They can't meet their obligations to depositors when borrowers default.

The RBI cannot ask the banks to reschedule the loans according to the State governments' wishes. The regulator has to follow its own norms. It can advise rescheduling only when the crop yield in a given area is less than 50 per cent of the normal.

In fact, it did approve rescheduling wherever these norms were fulfilled; in 100 out of 475 mandals of Telangana and 120 of 653 of Andhra Pradesh.

Two, the governments have made or are making all-out efforts to reduce the burden by eliminating the ‘ineligible' farmers to the extent possible, using all sorts of loopholes in the rules.

Three, the burden is being sought to be postponed through several ‘inventive' methods such as issuing bonds to the borrowers. The queerest proposal is asking the farmers themselves to first repay the loans with the assurance to reimburse them later. If the farmers could have paid, they would have paid, without waiting for government help.

No benefit to farmers

All this is not to say that the farm loans should never be waived nor that it is beyond the capacity of the governments to do so. It is only to assert that the schemes are not well thought out and bring little benefit to the farming community.

There is no effective plan, together with the present waiver, for the development of agriculture in these States, bringing down the need for such waivers in future.

Also, the benefit is limited only to institutional borrowers. The Rangarajan Committee on financial inclusion has pointed out that only 27 per cent of farm households are able to avail of institutional credit; therefore, 73 per cent of the farmers who do not get bank loans will be outside the scheme.

Similarly, the majority of small and marginal farmers who account for 84.93 per cent of all farm holdings (2010-11 official data) do not get bank credit, and therefore are outside the scheme. A World Bank report said that 87 per cent of marginal and 70 per cent of small farmers do not get bank loans.

The waiver promise has done more harm than good to the farmers as they could not avail fresh loans this kharif season.

Having learnt these lessons, the Centre should now have a fresh perspective on the rural credit scenario in India and should work out a comprehensive plan to give relief to farmers in distress in an effective manner.

If there's a will

In a recent study by this writer for the Centre for Sustainable Agriculture, the American model of ‘non-recourse' loans, suitably modified, was found suitable for India. Under this model, the farmers need not pay back the government in case of crop failure, because security for loan is limited to the crop alone.

Also, the farmer is not forced to repay the full amount when yield was low or market prices were not optimal. In a sense the loan is settled either through waiver or payment depending on the farmer's capability. The US government bears the insurance premium burden to a substantial extent.

The Indian government cannot afford to ignore agriculture. There is no way of getting food for 1.27 billion people other than producing it locally; and 48.9 per cent of employment accrues from agriculture. In other words, the government should be responsible to the farmer in the interest of protecting overall food and employment security. Piecemeal measures and populist gimmickry cannot work as substitutes for long-term policy.

The writer is an independent researcher


The Hindu Business Line, 25 December, 2014, http://www.thehindubusinessline.com/opinion/empty-promises-to-farmers-in-distress/article6725308.ece


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