Think beyond loan waivers:

Think beyond loan waivers:  (Farmer’s jeopardy – need to read between the lines)

Context:

  • The farmer’s distress in India needs to be addressed with a firm and concrete solution than farm loan waivers.

Demerits of Indian Agriculture:

  • Indian agriculture is characterised by low scale and low productivity.
  • More than half of the area under cultivation does not have access to irrigation.
  • Agriculture income which is generated at average size of landholding is not adequate to meet farmers’ needs.
  • Other crucial drawback is weather and market risks.

Farm Loan waivers:

  • The ultimate goal of farm loan waiver is to lessen the debt burden of distressed and vulnerable farmers and help them qualify for fresh loans.
  • The success of the loan waiver lies on the extent to which the benefits reach the needy farmers.

Drawbacks of Farm Loan Waivers:

  • First, it covers only a tiny fraction of farmers.
  • Second, it provides only a partial relief to the indebted farmers as about half of the institutional borrowing of a cultivator is for non-farm purposes.
  • Third, in many cases, one household has multiple loans either from different sources or in the name of different family members, which entitles it to multiple loan waiving.
  • Fourth, loan waiving excludes agricultural laborers who are even weaker than cultivators in bearing the consequences of economic distress.
  • Fifth, it severely erodes the credit culture, with dire long-run consequences to the banking business.
  • Sixth, the scheme is prone to serious exclusion and inclusion errors
  • Seventhly, the loan waiver as a concept excludes most of the farm households in dire need of relief and includes some who do not deserve such relief on economic grounds.
  • Finally, loan waiving can provide a short-term relief to a limited section of farmers; it has a little chance of bringing farmers out of the vicious cycle of indebtedness.

Suggestions:

  • For providing immediate relief to the needy farmers, a more inclusive alternative approach is to identify the vulnerable farmers’ based on certain criteria; and give an equal amount financial relief to the vulnerable and distressed families.
  • The sustainable solution to indebtedness and agrarian distress is to raise income from agricultural activities and enhance access to non-farm sources of income.
  • Improved technology, expansion of irrigation coverage, and crop diversification towards high-value crops are appropriate measures for raising productivity and farmers’ income.
  • States need to undertake and sincerely implement long-pending reforms in the agriculture sector with urgency.
  • There’s an urgent need for the removal of old regulations and restrictions on agriculture to enable creation of a liberalised environment for investment, trading and marketing.
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