Monday, 30th October 2017

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Open season for farm loan waivers

In the long term, the only real solution to rural distress is to shift labour to more productive segments of the economy

  • Published 21.12.18, 8:54 AM
  • Updated 21.12.18, 8:54 AM
  • 2 mins read
Political parties will find it hard to ignore visible signs of rural distress, but loan waivers can never be a solution Shutterstock

It has turned into an open season for farm loan waivers. Less than a week after assuming office, Congress governments in Rajasthan, Madhya Pradesh and Chhattisgarh have announced the waiver of crop loans up to two lakh rupees per farmer. The Congress president, Rahul Gandhi, has thrown down the gauntlet to the prime minister, Narendra Modi, challenging him to waive all farm loans nationwide, clearly aware that the Centre has neither the inclination nor the resources to be able to write off farm debt. The clamour for crop loan waivers is expected to turn strident as the general election draws near. The Centre has already taken the stand that it will not bear the burden of mass farm loan forgiveness — a strategy that the United Progressive Alliance government announced in its budget in 2008 which, many believe, helped it win the general elections the following year. The cost of that mammoth debt write-off was Rs 522.6 billion and covered 37.3 million farmers in the country. Back in July, Bank of America Merrill Lynch had predicted that the cost of the farm debt waiver would rise to $40 billion by the time the general elections come round next year.

Political parties will find it hard to ignore the visible signs of rural distress and the mounting rage of farmers against government apathy towards the pitiable state of those who toil on the fields. A Crisil study in March had observed that the incumbent governments in the states going to elections would have to face voter ire in states with a large rural populace: 77 per cent in Chhattisgarh, 72 per cent in Madhya Pradesh and 75 per cent in Rajasthan. Early next year, the focus will turn to Jharkhand (76 per cent) and Odisha (83 per cent).

But loan waivers also raise the troublesome question of moral hazard since they will encourage credit indiscipline and stoke expectations of future bailouts. They can never be a solution to farmer distress in the country. The Narendra Modi government has spoken about raising minimum support prices for more crops but even that will not be enough. In the long term, the only real solution is to shift farm labour to the more productive segments of the economy. As the farm sector’s contribution to national income plunges, there can be no case for condemning people to eke out a living on small, uneconomic farms. But that will only happen when a bustling economy creates more jobs.

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