Loan Waving- Lust For Political Gain may kill the economic ones
After India's first major Loan Waiver by V P Singh, it took almost nine years for banks to recover it, as per the economic and political weekly report in April 2008. It is very usual to see, politicians making vows of loan waving, as soon as they will come to power, to lure the farmers. In 2017 India faced $49.1 billion farm loan waivers, 16 times the 2017 budget for rural roads! The nationwide Rs. 52,000 crore formed the bulk of this figure. According to Economic Survey 2016-17, UP had slashed 13% of its capital expenditure to accommodate the loan waiver. The survey predicted that spate of farm loan waivers could significantly reduce aggregate demand and impart a deflationary shock to the economy. Now the question arises- “ Does Loan Waving really helps the farmer?” The further discussions may make the picture more clear.
Let’s start with a (true) story!
A lady in South East Mumbai- Vilas Yelmar, took out a loan of 2 Lacs to develop a small grape orchard. Her annual income rose to 2 million! Bank asked her to repay the loan but she told that she had spent the money on a new utility vehicle and lavish family wedding. Her words were: "My brother was the village head so it has to be a big wedding, that is where the money went. Paying off the bank loan is not really my priority."
Why would I repay if I expect someone to write me a cheque of Rs. 1 Lac? This is what is happening in many states. Farmers are even emptying their bank accounts so that banks cannot deduct the payment due from them. As per RBI’s Governor, Urjit Patel- “ Waivers undermine an honest credit culture". People in favor seldom debate that Farm Loan waving will render support to the farmers and trim the number of suicides but the reality is not the same. In 2007, before UPA announced loan waiver for 30 million farmers across 18 states, 16,379 Indian farmers committed suicide, according to National Crime Records Bureau (NCRB) data. A quarter (4,238) suicides from these were reported from Maharashtra, Loan waving led to a drop in farm suicides in India's richest state by GDP but in 2010 suicides rose again by 6.2%. By 2015, Maharashtra recorded 4, 291 suicides, its highest rate ever, accounting for 34% of such deaths nationwide, according to NCRB data.
Defaulters tend to increase when elections approach as the farmers hope that the Government, desperate for their votes, will bail them out. SBI has even started Naming and shaming approach by putting defaulters' picture on the newspapers to get them to pay up.
So can Loan waving alone solve the agrarian crises? Probably not. Large chunks of loans only go to buy seeds, fertilizers rather than mechanization. There are very few initiatives from the Governments towards irrigation or new techniques to boost productivity and prevent droughts. Over a decade to 2014-15, as institutional culture grew 547%, rural road construction – which increases access and boosts agricultural income and productive employment- grew 10.5 %. Roughly 7% of India’s total grain output, 10% of seeds and between 25% and 40% of fruits and vegetables- overall a third of farm harvest spoils are wasted every year because there isn’t enough storage and supply-chain infrastructure, according to 2015 IISR paper.
Irrigation which plays a vital role during climate change has created the huge problem in Indian farming. Not more than 47.6% of India's farms are irrigated as India spend reported on June 8, 2017. Thus we see that Loan waving is a temporary solution. In order to make farmers independent and boost agricultural output, enhanced technological equipment, better storage arrangements, efficient irrigation facilities are required. The government should focus more on investing in areas which would serve the purpose in long run and pay a higher return on investment. Waiving loans has moral hazards and it tempts others also to demand the same and is clear injustice with those farmers who repay the loan at the time. The need of the hour is to make Indian Farming self-reliant and self-sufficient for a prosperous future.