BPSC Notes

The vagaries of the monsoon and the consequent droughts, floods, or crop failures that immiserate vast sections of farmers and agricultural labourers in India, are a matter of routine even seven decades after independence. In fact, the crisis has only deepened. With inadequate agrarian policies to confront systemic structural issues, rural India continues to suffer.

After two consecutive drought years, though the south-west monsoon was normal in most parts of India, there is a severe drought in particular parts of the country due to the failure of the north-east monsoon. The central government has declared eight states—Kerala, Karnataka, Tamil Nadu, Andhra Pradesh, Rajasthan, Uttar Pradesh, Uttarakhand and Madhya Pradesh—as drought-affected.

In January 2017, the Tamil Nadu government declared the state to be drought-affected and waived cooperative bank loans of small and medium farmers (who comprise around 92% of all farmers in the state). Later, a high court order directed the state government to waive cooperative bank loans of all farmers (30% of the total cooperative bank loans were given to larger farmers). Today, farmers are demanding further relief from the central government in the form of a waiver of farm loans from nationalised banks and better compensation for crop failure. The newly-elected Uttar Pradesh government has declared a farm loan waiver expected to cost the state government ₹36,359 crore.

These measures do promise some relief to farmers, but they are no panacea for the deep-rooted agrarian crisis in general and rural indebtedness in particular. A loan waiver is at best an immediate response to an emergency situation. In 2008, the United Progressive Alliance (UPA) government undertook a large loan waiver programme. That experience, which cost the exchequer in excess of ₹70,000 crore, tells us that loan waivers, even if unavoidable at times, are a one-time relief from partial indebtedness and do nothing to stop the recurrence of widespread rural indebtedness.

Not surprisingly, the otherwise-reticent governor of the Reserve Bank of India (RBI) and the head of the National Bank for Agriculture and Rural Development have spoken of the “moral hazard” entailed in loan waivers that supposedly discourage honest borrowers from repaying their loans on time. RBI Governor Urjit Patel added that loan waivers undermine credit discipline and result in higher government borrowing which, in turn, increases the costs of borrowing by others and “could eventually affect the national balance-sheet.”

The facts are simple. Politicians believe loan waivers enhance their popularity, moral hazards be damned. Many argued that the UPA would not have been able to return to power in 2009 had it not been for the farm loan waiver scheme. Agricultural loan waivers and subsidies do not benefit the poorest in rural India. In fact, loan waivers do little to relieve the indebtedness of the most vulnerable farmers who are either landless or possess smallholdings. These farmers are not considered creditworthy, have no access to institutional credit and are entirely dependent on usurious moneylenders.

Loan waivers do not alleviate agrarian crises that have deep structural roots in India’s economy, including uneven access to subsidies, skewed landownership patterns, and a degeneration of government-supported agricultural extension programmes. The agrarian crisis has not only persisted, but has become more acute. Climate change and extreme weather patterns have further exacerbated the insecurities of farmers. The lack of quality capital assets in surface irrigation and rainwater harvesting continues to be a challenge. This has led to a growing dependence on depleting groundwater as the main source of irrigation. About half of the country’s cropped area still does not have access to assured irrigation facilities. The union government’s decision to increase the number of workdays under the Mahatma Gandhi National Rural Employment Guarantee Act to 150 days a year in the eight drought-affected states is a welcome move.

Creation of assets that conserve water, improve irrigation and prevent drought-like condition from recurring needs to be expedited. There are a host of other factors that have adversely affected the “balance sheets” of Indian farmers. While costs of production continue to rise, returns remain low and uncertain. Markets for agricultural produce in India and the world over are imperfect and volatile.

Dwindling farm incomes and rural indebtedness need to be understood in this light. Unless concerted efforts are made to address these systemic problems, little will be achieved to break this vicious cycle. Loan waivers are band-aid solutions at best. They offer temporary relief. The more permanent solutions remain to be addressed.
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