Farm Loan Waiver Not Good Enough for Agriculture Economy

In India where annual agriculture waste is about Rs 96,000 crore, farm loan waiver is just a poll sop with no long term economic gain for farmers in distress. The money waived could be invested for creating infrastructure that makes farmers independent of cartel of traders and help them to reap maximum economic benefit of their produce. Uttar Pradesh chief minister, on Tuesday announced a farm loan waiver of Rs 36,359 crore prompting farmers in other states --- Haryana, Madhya Pradesh and Rajasthan--- to demand a similar relief. Many farmer right advocates also want the outstanding loans to be written off saying unseasonal rainfall and drought has worn the sheen off the Indian farm sector in the last three years.

But, loan waiver has not helped the farmers. It is a relief only for one season with the farmers going back to grind in the next. Giving such sop is also not economically viable as it reduces government's fiscal power to intervene when needed the most. Studies done by the Kolkata based in the Indian Statistical Institute and the World Bank have showed that loan waiver is not a solution to Indian agriculture mess.

The institute's 2013 study showed increase in loan repayment default after the Central Government announced farm loan waiver of Rs 60,000 crore in 2008, a year before general election. Honest farmers repaying the loan also turned defaulters after the waiver, the study said.

A study --- The Economic Effects Of A Borrower Bailout: Evidence From An Emerging Market --- by Xavier Giné and Martin Kanz of the World Bank said such move can affect agriculture output in medium to long term as banks may get more selective in extending credit.

"We find no evidence of greater investment, consumption or positive labour market outcomes in areas where debt relief led to a significant reduction of household debt," the study said.

A 2015 ICRIER paper said the massive write-off of loans in 2008 took its toll on the banks, increasing the non-performing assets of commercial banks threefold between 2009-10 and 2012-13. Arundhati Bhattacharya, State Bank of India chairperson, said last month that the farm loan waiver leads to credit indiscipline for which a privilege motion was moved against her in the Maharashtra assembly.

By BOA Bureau