Farmer loan waivers: a race towards bottom
Democracy may be the best form of governance but it has severe fallouts. When the major chunk of the population is illiterate and the majority of the remaining is pseudo-literate, marking a distinction between policy and populism becomes difficult. Rhetoric replaces reality and slowly the era of post-truth politics emerges. Politicians believe that it is against their interest to think of policies with longer gestation period (Policies that work in a long run). The idea of instant gratification results into knee-jerk, and populist policies.
The most abused class of Indian social strata are those involved with “Farming and allied activities”. From policymakers to politicians, everybody has something for a farmer, but after 70 years of independence, and with 55% of the population involved into farming, the sector manages to contribute only 17% to India’s Gross Domestic Product (GDP). Marred with inefficiency, misallocated subsidies, ghost beneficiaries, kinked overlapping policies, the sector continues to remain a hot cake for the politicians, but only for the consolidation of vote bank. Everybody talks about the need for greater expertise and systemic prioritization for agriculture but all that the polity has to offer is “loan waivers”.
Loan waiving is the worst policy response for farmers in distress. The focus should not be about waiving off the loan, but the focus should be to understand why does a farmer fail to repay his debts?
Loan waivers are insipid. Any waiver is bad economics and it shall be avoided because loan waivers destroy the credit culture, inhibit investments in the farming sector and they put extreme pressure on states’ fiscal. Various studies have also shown that farm loan waivers do not result in growth or betterment of the farm sector or farmers. Such waivers push up inflation, are badly targeted and are incomplete. A tiny fraction of farmers benefit out of such farm waivers, and such policies majorly benefit those farmers who are connected and who do not actually need any such relief. Amongst the needy farmer who manages to get the loan waived, such waivers bring them partial relief and the debt trap and inefficiency cycle continues. Loan waiving excludes agricultural labourers who are even weaker than cultivators in bearing the consequences of economic distress. Also, it is often seen in many cases that one farming household takes multiple loans from various sources and also in the name of different family members. This results in multiple loan waiving. Loan waivers also cause deterrent towards other developmental expenditure that has a much larger multiplier effect on the economy.
Rather than practicing the easy, short-term, and populous policy of waiving loan; the state must focus on enhancing farm income by improving efficiency, sustainability, and capacity through proper identification of needy farmers, through subsidizing technology, expanding irrigation policies, promoting crop diversification and focusing on agricultural warehousing.
A major part of the subsidies given by the government does not reach the needy. An identification mechanism through Jan Dhan, Aadhar, Mobile (JAM trinity) can help with proper identification of needy farmers. All cash transfers must be stopped immediately to make targeting efficient and to save millions for the exchequer. Our farmers still rely on age-old practices of farming; such practices have become non-competitive and obsolete, resulting in wastage of precious man-hour. Irrigation policy shall incorporate rainwater harvesting and the government must create a way for crop diversification. Small irrigation projects like tube wells, check dams are required instead of big and expensive irrigation projects. Crop diversification towards high-value crops is appropriate measures for raising productivity and farmers’ income. A significant percentage of farmers have no information about Minimum Support Prices, eNAM, APMC Mandis, Direct Cash Transfer, technology and Subsidies. Village Panchayats should organize a “Kisan Mela” ahead of every sowing season detailing about issues like which crop to sow, market prices, fertility, irrigation mechanism, technology, efficiency, best available practices, and about Agricultural extension services. An infrastructure for Creation of Micro-level agro advisors shall be put and a dedicated electricity line for farmers should be created. There should be a separate policy to tackle the effects of climate change in agriculture with a special focus on the effect of heat waves on farmers and agricultural labourers.
Big changes need time and patience. Knee-jerk policy responses like “Loan waivers” only provide temporary relief and further delay the process of bringing a long-term solution to the farm crisis in India. A well-conceived comprehensive solution should be formulated keeping in mind the needs of the long run as well as the short run. Farming has to be self-reliant, and self-sufficient. This is possible only if we race towards the top and not towards the bottom.
The author is an economist and has published two books. He tweets at @ShariqUS.
Disclaimer: Views expressed are exclusively personal and do not necessarily reflect the position or editorial policy of Oracle Opinions.