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LATEST NEWS UPDATES | Farm loan waiver is no solution to farmers' woes -Tamal Bandyopadhyay

Farm loan waiver is no solution to farmers' woes -Tamal Bandyopadhyay

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published Published on Mar 21, 2017   modified Modified on Mar 21, 2017
-Livemint.com

The focus should be more on making the prime minister’s crop insurance scheme a success than demanding farm loans waivers from banks

Last week, the Indian National Congress at the Maharashtra assembly submitted a breach of privilege notice against State Bank of India chairman Arundhati Bhattacharya for “insulting farmers and the House” by her remarks on farm loan waiver. The leader of the opposition in the state assembly, Radhakrishna Vikhe Patil, was upset with Bhattacharya because she “did not apologise for her remarks despite the Congress’s demand”.

The Congress and the Nationalist Congress Party have been demanding a loan waiver for around 3.1 million farmers in Maharashtra who owe Rs30,500 crore to the banking system. “Bhattacharya is not a policymaker and she cannot take a decision regarding loan waivers to the farmers. She had no right to make such comments,” and her remarks were “violation of the rights of the legislature which make laws,” Vikhe Patil said.

What did Bhattacharya say? The boss of India’s largest lender early last week said farm loan waivers disrupt “credit discipline” among borrowers as they expect future loans to be waived as well. Bhattacharya feels that while it is important for banks to make credit available to the farmers, maintaining credit discipline is equally important. “For the time being, we will get our money back as the government will pay for it. But the farmers will keep waiting for the next elections for the next round of waiver,” she said.

Bhattacharya, in fact, echoed former Reserve Bank of India (RBI) governor Raghuram Rajan’s concerns—“Repeated loan waivers by various state governments distort credit pricing, thereby also disrupting the credit market.”

Vikhe Patil did not move a breach of privilege motion against Rajan in the past and I hope he would not do so against a columnist who is not a policymaker and probably, in Vikhe Patil’s view, doesn’t have any right to have an opinion on this.

The Bharatiya Janata Party’s (BJP) election manifestos in Uttar Pradesh and Uttarakhand and the Congress manifesto in Punjab have committed to write off loans of small and marginal farmers. In the recent past, Tamil Nadu had waived off loans of small and marginal farmers. The ousted Samajwadi Party government in Uttar Pradesh had in 2012 announced a waiver of crop loans up to Rs50,000 taken from state cooperative banks. There are many more such instances.

The mother of all farm loan waivers happened in 2008 when the Congress-led United Progressive Alliance announced a Rs60,000-crore debt waiver package for small and marginal farmers in the budget which was later extended to the large farmers as well and the amount increased to Rs71,600 crore. It benefited at least 36.9 million small and marginal and 5.97 million large farmers. The small farmers are those who have a land holding of up to one hectare (2.5 acres), while the marginal farmers have land holding between 1-2 hectares. Around 80% of all land holdings in India are with the small and marginal farmers.

This is not the first time the Indian government has doled out concessions to farmers. In 1989, the Janata Dal government, a coalition of several parties representing socially underprivileged and lower castes and farmers, floated the first-ever agriculture loan write-off scheme. A brainchild of the then deputy Prime Minister and minister of agriculture Devi Lal, the scheme waived loans up to Rs10,000 issued to farmers, landless cultivators, artisans and weavers by state-run banks. Till 1992, more than 44 million farmers benefited from this scheme to the tune of Rs6,000 crore.

Incidentally, Bhattacharya’s comment was made a day after the State Bank announced a one-time settlement scheme for around Rs6,000 crore farm equipment and tractor loans. Such one-time settlements, where banks settle for less than what the borrowers are to repay or take a haircut, is a commercial decision and part of the bad loan recovery process. However, when farm loan waivers are decided by the political parties and thrust upon the banks, it destroys the credit culture as the borrowers (in this case, the farmers) are encouraged to think that they don’t need to repay bank loans even when they are not distressed.

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Livemint.com, 20 March, 2017, http://www.livemint.com/Opinion/H2d2sDajkghLSPx1viFfeI/Farm-loan-waiver-is-no-solution-to-farmers-woes.html


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