Farm Loan Wavier

 

What has happened?

That were announced by the UP government on Tuesday [4 April 2017]:

  1. YogiAdityanath cabinet on Tuesday (4 April 2017) waived off loans worth Rs. 30,729 crore of small and marginalised farmers, who had taken a crop loan up to Rs.1 lakh each.
  2. Along with this, an additional Rs. 5, 630 crore was given to write-off NPAs of 7 lakh farmers of the state, taking the total form loan waiver amount to Rs. 36,359 crore.
  3. The UP government announced special measures to extend relief to wheat farmer.
  • The UP cabinet passed the proposal to open 5,000 new direct wheat purchase outlets with an aim to procure nearly 80.25 tonne of the grain – to rein in the blooming business of middle men, who often don’t let the benefit of MSP reach the farmers.

 

  1. Raise by Rs. 10 per quintal the MSP for wheat procurement as loading and unloading charges.
  2. The formation of a three – member committee was also announced to study how can the interest of potato farmers be accommodate and protected, who face immense hardship in case of bumper crops.
  3. Approval on the anti-romeo squad
  4. Approval the crockdown on illegal slaughterhouses.
  5. Need to build a sports complex in Ghazipur.
  6. Formulate a new industrial development policy to invite investment into the state.

 

Was the Waiver needed?

  • In the past, farmers in the state had suffered because of successive drought and hailstorm.
  • Rain-fed agriculture
  • Droughts due to El Nino,
  • Un-scientific farming practices.
  • 17% of India’s GDP = from Agriculture, problems faced by Indian Agriculture.
  • Yield risk
  • Price risk
  • No other sector can claim this level of uncertainty at almost every level of operation.

 

  • The risk of monsoon failure and infestations during crop growth.
  • The risk of lower prices after harvest.
  • Compromise in quantity and quality during storage and distribution.
  • Farmer suicides – according to census 2011, one farmer commits suicide every hour.
  • Increasing attrition rate in agriculture – 100 farmers are giving up agriculture every hour.
  • Distress migrations – causing burden on destinations (mostly urban areas).
  • Growth of unorganized credit sector-lack of access to organized sector lending many farmers resort to unorganized credit sector.

 

Paisa Kaha se Aayaga?

Fiscal burden = Stress on the exchequer

 

  • Since there is no central government assistance far waiver, Uttar Pradesh will have to find own resources to compensate the banks.
  • The loan waivers will cause an additional 36,359crore burden on the state coffers.
  • The yogi adityanath cabinet decided to float KisanRahat Bonds for raising Rs. 36,359 crore required for waiving off the loans as the fiscal Responsibility and Budget Management (FRBM) Act mandates that no state can allow its fiscal deficit to grow by beyond 3% of its GDP.
  • The state is already reeling under a debt of Rs. 3,27,470crore, the nation’s second most indebted state {acc. to a RBI’s state fiscal report up to 2016.}
  • The UP government must dedicate a mammoth one-third chunk of the annual state budget to the cause.
  • It could be difficult to handle the burden of loan waiver in a single financial year.
  • Loss of revenue from banning of slaughter houses.

 

The Politics and BAD Consequences of waiver

  • Can happen in extreme emergencies such a natural calamity.
  • But no definitely as a political tool to win elections.

 

Demand in other states

  • The UP waiver will immediately trigger demand for similar packages in other agrarian states like Punjab, Maharashtra and Tamil Nadu.
  • Already, in Tamil Nadu, the Madras high Court has
  • Asked the state government to waive loans of all farmers.
  • Restrained cooperative societies and banks from recovering their dues.
  • Wants the central government too to share the state government’s loan waiver burden.
  • Deterioration in credit discipline.
  • This is one reason bankers and the RBI has always vehemently opposed the idea of farm loan waiver.
  • Such a move will disrupt the credit discipline of borrowers.
  • “Today the loans will come back as the government will pay for it but when we disburse loans again then the farmers will wait for the next election expecting another waiver” the SBI chairman said.
  • Such compensations have never reached banks on time. It has only burdened the banks even more.
  • In 2014, farmer RBI governor RaghuramRajan asked “How effective these debt waivers have been?
  • Studies :
  • They have been ineffective
  • They have constrained the credit flow post waiver to the farmers.”
  • Once the banks system is shut for the farmer, he will then be forced to seek the assistance of the private moneylender, putting his life’s savings, land and honor at risk.
  • High exclusion errors in loan wavier scheme.
  • Misuse of taxpayer’s money – they honest taxpayer’s hard earned money is misused instead of channelizing the funds in enhancement of agriculture.

 

Why Yogi Adityanath’sRs. 36,359 Crore form loan waiver is not just good politics but good economics too.

  • For years, we have been made to believe that
  • Markets can regulate themselves lake decisions rationally, and doesn’t require government intervention.
  • Government should stop giving freebies (subsidies) to farmers and, of course, loan waiver is a complete no-no.
  • The move is pure politics and a very bad economics.
  • The move will inspire others to stop paying their dues to the banks, which ultimately discourage the latter from issuing loans to farmers.

 

  • There are two wrong assumptions in this argument:
  • It considers that humans don’t like to fulfil their responsibilities.
  • In rural areas, people tend to opt for loans when there is no option.
  • People mostly are fearful of the banks and no one wants to be harassed by banks.
  • Those claiming that form loan waiver is bad economics tend to treat agriculture at per with other industrial sectors.
  • Farmers of the country do not get benefits at per with industrial workers.
  • They have been a neglected lot for decades.
  • Investment don’t always have to be on physical infrastructure only.

 

The Solution = Steps that can be taken

  • Problems in Indian agriculture are structural they need long – term solutions.
  • Instead of waiving loans, governments and promise free supply of fertilizer, seeds equipment and warehouse facility.
  • Fresh funds can be made available on easier terms to the deserving farmers through nodal agencies such as National Bank for Agriculture and rural Development.
  • Restructure bad form loans before writing it off.
  • Crop insurance.
  • Pradhan MantriFasalBimaYojana
  • Improve the institutions:
  • Strengthening rural credit cooperatives
  • SHGs could act as source of credit.
  • Massive investment in area such as irrigation, water conservation, better storage facilities, market connectivity and agricultural research.
  • Improve yields + combat the vagaries of rainfall and temperature + Better prices for its produce.