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LATEST NEWS UPDATES | Prelude to a contagion -Ashok Gulati & Siraj Hussain

Prelude to a contagion -Ashok Gulati & Siraj Hussain

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published Published on Apr 10, 2017   modified Modified on Apr 10, 2017
-The Indian Express

UP’s farm loan waiver could prompt other states to follow suit, evade real reasons for agricultural distress

The new Uttar Pradesh Chief Minister, Yogi Adityanath, has hit the ground running. In his first cabinet meeting, he took three important decisions with regard to farmers. First, he waived farm loans of more than Rs 36,000 crore, primarily of the small and marginal farmers who comprise 92 per cent of the state’s farming community. Second, he announced that 5,000 procurement centres will be set up in the state and UP’s wheat procurement target will be gradually raised to 8 million tonnes. Third, a committee will be set up to look into the woes of potato producers who have been hit by the collapse in prices. We welcome these announcements.

His decision on the farm loan waiver, however, has raised concerns. On the face of it, the waiver looks like a populist measure; it is in line with the BJP’s manifesto in the recent UP assembly elections. But the move could have a contagion effect on Punjab, where the Congress’s manifesto had promised a similar step. The contagion could spread further. The Madras High Court has suggested farm loan waivers to the Tamil Nadu government, and many other states, like Maharashtra, Karnataka and even Kerala, that have experienced drought recently, could follow suit. Since the payment has to be made through state finances, one will have to wait and watch if farm loan waivers become an all-India phenomenon, and how that impacts the credit culture.

Is the farm loan waiver a “solution” to farmers’ woes? Certainly not. But looking at it from a broader perspective, the move appears to be partly an “atonement” for failed agricultural policies, and partly an “appeasement” measure. Let us explain this a bit with respect to UP. The state produces 30 million tonnes (mt) of wheat and about 20 mt of paddy (13 mt of rice) annually. But its procurement levels have remained pitiably low, despite wheat prices often hovering at 10-15 per cent below the minimum support prices (MSP) and paddy prices often falling to 15-30 per cent below the MSP. If one calculates the “imputed loss” to farmers for not having received the MSP over a three to five year period, the figure will easily equal the loan waiver amount.

Further, after the recent floods in UP, farmers hardly got any compensation for months, despite registering under the Prime Minister’s Fasal Bima Yojana (PMFBY). On enquiring with the insurance companies, we found that neither the state government, nor the Centre had deposited the due premium in time. Such ground realities often drive farmers to the wall, and then political parties come up with crude methods like “loan waivers” to give them “relief”.

In a recent study on UP’s agriculture (ICRIER working paper 335), we have outlined a slew of policies to double the state’s agri-growth. These policies include creating robust procurement systems, augmenting milk processing, rationalising sugarcane pricing and freeing molasses from government controls, using solar power and running potato cold storages largely on such power, introducing high density mango cultivation, and opening land lease markets.

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The Indian Express, 10 April, 2017, http://indianexpress.com/article/opinion/columns/prelude-to-a-contagion-uttar-pradesh-yogi-adityanath-farm-loan-waiver-4606683/


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