Relevance : GS Paper III (Indian Economy)
Why has this issue cropped up?
The talk of the season on the farm front seems to be loan waivers. Farmer leaders are asking for it and those looking for power are ready to oblige. Newly elected chief ministers of Madhya Pradesh, Chhattisgarh and Rajasthan have all announced loan waivers within their promised time of 10 days.
The statistics of loan waiver
- The total outstanding credit to agriculture currently is likely to be around Rs 12-13 lakh crore.
- If all of this is waived off it will simply blow up the budget. It is not feasible.
- So, several restrictions will be put, such as limiting it to short-term crop loans only, maximum limit of say Rs 2 lakh per farmer, and, only from nationalised banks and PACs.
- Despite these restrictions, the total bill is not likely to settle below Rs 4 lakh crore, and may even touch around Rs 5 lakh crore.
Will loan waiver help small farmers?
- The loan waiver is only a temporary relief, that too tilted towards larger farmers.
- Institutional credit comprises about 64 per cent of total credit taken by all farmers, the remaining 36 per cent coming from non-institutional sources
- Further, it is the large farmers who take a larger proportion of their credit from institutional sources (about 80 per cent)
- The marginal farmers with holdings of less than one hectare, who constitute 68.5 percent of the peasantry, actually take more than half of their loans from non-institutional sources at interest rates that range from 24-36 per cent, and sometimes even higher.
Can there be a better method to support farmers?
- The alternative is to think of a structured and stable income/investment support policy for farmers.
- An improvised version of Telangana’s Rythu Bandhu scheme could serve as a starting point. Under this scheme, the government can give Rs 10,000/ha as investment support to cultivators. Payments under this scheme could be inversely related to the holding size, making it more pro-small holders.
- Farms can be geo-tagged to ensure that only those farmers get benefits who are cultivating land.
- Land records will have to be upgraded to include tenants. Government records still show only 10 percent of tenancy in the country while ground realities are very different.
- The Centre should also include fertiliser subsidy into this and encourage states to transfer their power subsidy through this platform based on per hectare basis. Such a policy can reach the largest number of farmers, be more equitable, the least market distorting, and predictable.
Striking the right balance between consumers and farmers is the need of the hour.