Relevance : GS Paper III (Indian Economy)
Theme of the article
In addition to reforming the credit system, agriculture should be made profitable.
Why has this issue cropped up?
Rural agrarian distress is firmly at the centre of the national discourse today, triggered by the continuous farmer agitations in the past two years.
Loan waivers becoming a norm
A farm loan waiver was among the first steps taken by the three new governments in Rajasthan, Madhya Pradesh and Chhattisgarh, and has understandably set off a debate about its usefulness.
Since 2014, there have been similar moves in Telangana, Karnataka, Andhra Pradesh, Maharashtra, Uttar Pradesh and Punjab.
The need of loan waivers
- The political system is essentially responding to a cry of distress by addressing the direct point of pain.
- It is their mounting debt burden that is pushing farmers to despair and suicides.
- The NSSO Survey shows that 52% of farming households are indebted, with rates as high as 89-92% in some States.
- A loan waiver is an acknowledgment that farmers have been pushed into debt due to the systemic failures of the government.
Major reasons for farm debt
- lack of compensation during drought and disasters,
- the failures of the crop insurance scheme, and
- the deficit due to prices falling below the announced Minimum Support Prices
Questions that loan waivers raise
How can one ensure that its benefit reaches small and marginal cultivators who are the ones who really require relief?
And how does one guarantee that the same situation is not replayed five years later?
Loan waivers are not a solution
Repeated loan waivers used every few years are not in the interest of farmers. Immediate relief should be accompanied by a long-term systemic solution to indebtedness.
The plight of marginal farmers
- A study showed that 75% of farmer suicides in Telangana are by tenant farmers.
- The Reserve Bank of India did issue guidelines in 2014 for extending loans to Bhoomi Heen Kisan (landless farmers) and for a debt-swapping scheme to convert informal loans of farmers into bank loans, but they have remained on paper
Finding long term solutions
- Need of a functional institutional credit system which is accessible and accountable to all cultivators. This should cover not only land-owning farmers but also sharecroppers, tenants, adivasi and women farmers, and animal-rearers.
- Requirement of the registration of all cultivators and providing them Kisan credit cards.
- Need of protection from debt trap in bad years.
- Establishment of farmers’ distress and disaster relief commissions at the national and State levels, based on the model of Kerala’s Farmers’ Debt Relief Commission.
- Given that agriculture is a key national enterprise, the concepts of limited liability and bankruptcy protection need to be adapted to the farming sector. This approach provides targeted protection to distressed farmers when they require it, rather than allowing debt, distress and suicides to accumulate until an election year.
- Agriculture should be made profitable by ensuring fair remunerative prices, lowering the cost of cultivation, and promoting viable farmer collectives and sustainable models of agriculture.
The challenge before political parties and governments is to deliver on the institutional solutions demanded by farmers. The farming community is not likely to relent if governments adopt a business-as-usual approach.