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LATEST NEWS UPDATES | Loan waiver leaves Indian farmers trapped in deadly debt spiral -Bibhudatta Pradhan & Pratik Parija

Loan waiver leaves Indian farmers trapped in deadly debt spiral -Bibhudatta Pradhan & Pratik Parija

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published Published on Mar 31, 2017   modified Modified on Mar 31, 2017
-Livemint.com

Narendra Modi’s election promise in Uttar Pradesh comes back to haunt as other states demand the Union govt offer an agriculture bailout package across the country

New Delhi:
An election promise to farmers in the politically sensitive state of Uttar Pradesh is coming back to haunt Prime Minister Narendra Modi, as other states demand the Union government offer an agriculture bailout package across the country.

During the hard-fought election campaign, Modi pledged that if his party was voted to power in Uttar Pradesh, it would write off loans of farmers. Earlier this month, the Bharatiya Janata Party (BJP) formed government after securing a significant majority in the state.

In Bajherakhurd village in Uttar Pradesh, Kumarpal Singh is eagerly awaiting the announcement that will result in part of his current Rs. 6,40,000 loan being waived. He received a bailout of Rs. 10,000 in 1990.

“It will give me some relief from the loan burden—otherwise I will sell part of my land,” said Singh, 67, describing how it is tough for him to pay off the loan due to crop damage and poor prices for his rice and wheat. “We farmers are in a dying state.”

Singh paid a 10% cut to a middleman to facilitate the crop loan, which attracts an annual interest rate of 7%. Even though the loan agreement says he has to spend the money for agriculture purposes, he spent most of the money on his daughter’s marriage. With his farm income reduced, he is now in a debt trap.

Controversial tool

The farm loan waiver is one of India’s most popular, often-used political tools. In 2009, it helped to return to power Manmohan Singh’s Congress-led government, which offered borrowers a bailout program in which 37 million farmers benefited from waivers of Rs. 52,200 crore. In 1990, the government of Prime Minister V. P. Singh also offered an agricultural debt relief program of up to Rs. 10,000 for each borrower. In Andhra Pradesh and Telangana, two separate regional parties came to power in 2014 on the promise of a loan waiver.

But the figures don’t add up. Farm waivers increase the budget deficits of federal and state governments and escalate inflation. When he was Reserve Bank of India governor in 2014, Raghuram Rajan said such programs ultimately constrained credit flow to farmers. The waivers also disrupt credit discipline among borrowers, Arundhati Bhattacharya, chief of State Bank of India, said this month.

“It’s an atonement at one end of the failure of the past policies, and an appeasement on the other,” said Ashok Gulati, a professor with the Indian Council for Research on International Economic Relations, in New Delhi, arguing loan waivers are not a solution to farmers’ distress.

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Livemint.com, 29 March, 2017, http://www.livemint.com/Politics/uZX6F6WwYQBtuXgmJpDyQK/Loan-waiver-leaves-Indian-farmers-trapped-in-deadly-debt-spi.html


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