Agri Politics Agriculture

Reasons Why Farm loan waiver doesn’t improve the Indian farmer’s condition

Farm loan waivers again took the center stage in debate with the announcement of farm loan waivers by newly formed BJP government in Uttar Pradesh as by their poll manifesto. And also the order of Madras High Court directing the Tamil Nadu Government to extend waiver to all farmers in the state. This is not the first time, history of farm loan waiver can be traced back to 1989, when the Janata party government effected first agricultural loan waiver scheme. It became a populist measure when UPA government announced loan waiver of Rs.71,000 crore to farmers of entire country that helped them to retain power in 2009 elections. Since then, many state government and almost all political parties speak about loan waivers as and when election makes the scene.


All is well, when the farmer make good harvest and repay his debt regularly. But, Indian agriculture is playing gamble with monsoon, every season will not be the same here. Now, farmers are facing the burden of monsoon failure and drought that put compulsion over government to help them out of cycle of Indebtedness.

Inputs costs are increasing every year, government gives us Urea to cheap rate. Who will give us seeds, Pesticides and other Fertilizers ? We are dependent on credit every season for purchase of sees “, said a farmer to our IMoT member. When inquired on another farmer, he said, “I have got one and a half lakh rupees loan for irrigation development. How could I repay the money when I couldn’t grow anything in my land for the past two years ?

Farm Loan waiver will certainly give them monetary relief and encourage them to continue farming. It also prevent the harassment of bank officials in the process of loan recovery. “Indebtedness is the key reason for farmer’s suicide. We can’t allow our own farmers dying. Loan waiver will help them out of both economic and physiological stress” said a social media activist when questioned over his post supporting farm loan waiver.


But economists have expressed their reservation over loan waiver in various occasions. Ex-RBI Governor Dr. Raghuram Rajan voices that, “Repeated loan waivers by various state government distort credit pricing, thereby disrupting the credit market”. Similarly present RBI Governor Dr. Urjit Patel also said the same “It (Farm Loan Waivers) impacts credit discipline. It Plays Incentives for future borrowers to repay”. They fear that those who have ability to repay will not do so expecting the same in future. The NABARD chairman and SBI chairperson are also worried about distortion of credit culture among farmers and call it as moral hazard as it is not targeted to needy.

farm loan waiver
                                                        Loan Waiver Vs Credit Discipline : Visuals – Naveen

Their reason for worry extend to macro-economic impacts that everyone has to face due to loan waivers. The state government will bear the cost of farm loans. But their fiscal space doesn’t support them, so they go for borrowings. Government borrow more from market and lead to crowding out of private borrowers. Mr. Urjit Patel observed that, “As higher government borrowing can also lead to increase in cost of Borrowing of others”. This will affect private investment and overall socio-economic conditions of state in long run.

Few farmers when we inquired also had the same opinion, “where will the government go for Money, they will take it again from us in the form of taxes or cutting out any welfare schemes”. Mr. Patel also concerned that loan waivers will only transfer tax payer money to borrowers (farmers). The fact that money or cost incurred for loan waiver has to be borne by entire society is accepted by both farmers and economists. They are also worried that as there is no assurance that same situation will not arise once again after 5-6 years if the loans are waived now.


When the economic impact of farm loan waiver and its burden is discussed with farmers, agricultural graduates and economists, I can cleave their opinions into two tones. In the first case, few inclined that, “when government can give tax sops and incentives to corporate, why can’t we expect the same for disadvantaged farmers in such disastrous condition? The majority of the banks Non Performing Assets (NPAs) are due to corporate, then why making a foul cry over farm loan waiver”. There is also truth in their side. The ten most indebted companies accounts for 12% of total NPAs.

According to the Bank for International Settlements (BIS), India’s corporate debt-to-GDP ratio stood at 51% of GDP as of 31 March 2016

The other group has different opinion. “Considering the economic impacts, relief to farmers could be as interest waivers or rescheduling repayment installments or at least loan waiver by case by case basis by scientific measures of their loss”. I would not like to judge which part / opinion is right. But both the opinions have deep rooted truth regarding farm loan waiver that we have to consider. We often forget other stakeholders involved here, the farmers of leased land and landless agricultural labors. It is universally known fact that they are deprived of farm loans, crop insurance and even disaster relief funds as they don’t have land records for mortgage or to claim relief.  So, the fact that loan waiver benefits the poorest and deprived farmers can’t be accepted blindly.


Then, how can we take forward the Indian agriculture from politicians who narrowed their perception that “Monetary Relief” as the only way to spend for agriculture or to farmers. The farm loan waivers though necessary at some extreme situations to targeted beneficiaries are always misused by populist politicians to allure voters. This will no way lead to agricultural development or farmer welfare.

Such huge sum of money spent over loan waivers can be used for technology up-gradation and infrastructure investment that we lag far behind. Wide coverage of crop insurance will help farmers to sustain over unforeseen circumstances. Strengthening supply chain and ensuring every Paisa that customers pay for produce reaches farmers instead of the middlemen will lead to long term impact over farmer welfare.

Water crisis, Monsoon failure and extended drought are the root cause for today’s agrarian problem that mooted them in demanding farm loan waiver. If government is really concerned towards farmers, they should address the root cause of problems. i.e. drought and water crisis. Hiware Bazare village that lies in the rain shadow semi-arid region of Maharashtra’s Ahmednagar stands as an example for the above said problem. The village adopted community development with reforestation and integrated watershed development. They focused spending on irrigation infrastructures and even banned water intensive crops like sugarcane, banana, etc. These measures have led them from village of water crisis and land degradation to village with highest GDP in the country.

                                          Development model of Hiware bazar

The most urgent step that government should respond is Minimum Support Price. Good MSP will directly benefit farmers and increase their savings and make them less dependent on farm credit. Dr. M.S. Swaminathan, noted agriculture scientist, who also headed National Commission for farmers has stated recently that, “ Credit is the key input and a healthy credit system cannot be based upon loan waivers”. For a viable and stable solution he mentions, “Pricing and procurement based on total cost of production plus 50% pricing will provide enough opportunity for saving money for meeting the challenges of unfavorable season”. But, various government are reluctant to implement the recommendations of National Commission on farmers that submitted their report long back on 2006.

Even farm loan waivers across entire country will be only a chicken feed considering the intensity of sufferings they face. Politicians wish to adore with pro – farmer tag by waiving farm loans without long term vision and policy. Only the populist politicians will reap the benefit of loan waiver neither the farmer nor the economy. To conclude in my language, farm loan waiver is like “covering the foliage with mesh as an act to prevent nematode infestation – Ignoring the real cause of problem”