Wednesday, March 22, 2023
HomeOpinionFarm Loan waiver will hit more NPAs – Part I

Farm Loan waiver will hit more NPAs – Part I

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Farm Loan1

Our Indian agriculture is in dire need of mechanisation and modernisation to make it a self-sustaining commercial activity. It has become more of a compulsion for the farmers instead of a promising career opportunity. Drylands are the worst-hit by the agrarian crisis and deserve special treatment. It is common knowledge that farming is of little viability on small holdings in drylands. When nature rides roughshod over debt-ridden farmers in the form of erratic monsoon and crop failures, they face grim options. Indebtedness is a key reason for the many farmer suicides in the country. Loan waivers provide some relief to farmers in such situations, but there are debates about the long-term effectiveness of the measure. Farm loan waivers may act like an immediate relief for the financially distressed, debt-ridden farmers. But it’s not an optimal solution in the long run. Money is transferred from taxpayers to the borrowers. Waiving loans addict the farmers to the concept that repayment is not to be expected. It is just like giving alms to the able-bodied beggar and perpetuating begging habits. It is to be remembered that the loan waiver has not helped the farmers as 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.

SBI Chairman Arundhati Bhattacharya once said that “such schemes disturb credit discipline and raise hopes for more waive by other states. In case of a (farm) loan waiver there is always a fall in credit discipline because the people who get the waiver have expectations of future waivers as well.” No doubt, banks might get benefit in the short run as their loan book gets lighter and they get purge of some non-performing assets. But such waivers and their anticipation in future would damage credit culture. A blanket waiver scheme is detrimental to the development of credit markets. The banks may become wary in providing loans to the poor farmers who actually need it. Such loan waivers will add to the NPAs of the banks and it will cost taxpayers.

When former PM Vajpayee was asked about loan waivers his response was like this “I don’t believe in such populist measures… This issue can be solved only by making agriculture lucrative “. So the state governments should start thinking in that direction to find a sustainable solution. Unfortunately, the loan waiver is an easy way for the politicians to impress the poor and this issue is going to persist for a long time ! Don’t we think, the governments – Centre and states – have repeatedly failed to break the cartelisation and their effort to create farm infrastructure through cold stores has helped the corporate sector more than the farmers ?

(This is the first part of the Diary, the latter part will continue tomorrow)


(The views expressed by the author in the article are his/her own.)
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