A farmer catches the budget on his radio in a village near Amritsar. (PTI)

Calcutta, Feb. 29: Questions about the effectiveness of the Rs 60,000-crore farm debt waiver followed close on the heels of the cheers that rose in the Congress over finance minister Palaniappan Chidambaram’s announcement today.

“Farmers committing suicide had borrowed from moneylenders. The debt relief package won’t give succour to distressed farmers who do not have access to institutional credit,” said M. Govinda Rao, the director of the National Institute of Public Finance and Policy.

The banking industry was asking a different question: who would stump up the cash? Banking stocks were hammered on the market as a result.

“It is an off-budget item and it’s not clear who will bear the burden. So, it’s difficult to forecast the effectiveness of the spending,” said Samiran Chakraborty, the chief economist of ICICI Bank.

The problem of access to credit was the highlight of the R. Radhakrishna Committee report, which had looked into the problem of agricultural indebtedness and which the finance minister mentioned in his speech.

According to the report, around 48 per cent of the farmers surveyed as part of the exercise were indebted. For more than 49 per cent of the indebted farmers — with landholding up to two hectares, also the target of Chidambaram’s waiver — the sources of the loans were non-institutional agencies.

Although the finance minister claimed that the package would help around four crore farmers, economist Srijit Mishra, who was involved in preparing the Radhakrishna report, disagreed.

“It is inadequate…. This package will only benefit farmers with access to formal channels of credit like commercial banks and cooperative banks and so the impact will be limited,” said Mishra, an associate professor at the Indira Gandhi Institute of Development Research.

The waiver is also being criticised for rewarding defaulters. “People sticking to the repayment schedule did not get rewarded…. This will send wrong signals,” said Rao, talking about the “moral hazard” created by the package.

The economists suggested a number of other ways the government could have proposed to spend the Rs 60,000 crore.

“One of the major reasons behind farmers’ indebtedness is poor price realisation. Ensuring fair price for their produce could have improved their condition,” said Mishra. He suggested spending on the latest technology to create a price information system for the farmer and better irrigation facilities and inputs for production.

The Radhakrishna report had proposed rescheduling of loans and expanding the availability of institutional credit to give relief to indebted farmers and increase productivity.

Chidambaram said: “The committee had made a number of recommendations but stopped short of recommending waiver of agricultural loans. However, (the) government is conscious of the dimensions of the problem and is sensitive to the difficulties of the farming community, especially the small and marginal farmers.”

His argument struck a chord with CPM leaders, who welcomed the “much-needed” but “half-hearted” package.

“Debt relief for farmers is indeed a welcome announcement. But the ceiling of two hectares will exclude a lot of indebted farmers from the scheme in dry areas like Vidarbha,” said Prasenjit Bose, the convener of the CPM’s research unit.