A waiver to common sense

Friday 15 August 2008

Farm loan waiver creating more problems than solutions

the upa government's Rs 72,000 crore farm loan waiver scheme is running into problems. The government had, through this populist measure, expected to win over farmers whose loans were being waived. What it had not bargained for was the growing resentment among farmers who went out of their way to repay loans before the scheme was announced. Many were even forced to borrow from private money lenders at exorbitant rates.

The scheme has done a lot of harm to the psyche and the credit culture amongst farmers. The R Radhakrishna Committee, expert group on agricultural indebtedness formed by the ministry of finance, had in its report made two recommendations. One was not to give any loan waiver and another to relieve the farmers of private debt and institutionalize them. Both were ignored.

In the wake of costlier agricultural inputs and inadequate price set by the government, tilling his land is a losing proposition for the Indian farmer. Worse still, he finds it impossible to even enter, forget competing, in the global market. Domestic strategies and high agricultural subsidies in the us and the eu have ensured this.

Several reports in the past have revealed the rising indebtedness amongst farmers in India. Countless recommendations have been made. But little has translated into reality--be it the implementation of the crop insurance scheme or the reduction of interest on farmers' loan to 4 per cent.

Even for the policies that have been put in place, the implementation remains shoddy. The loan waiver was hastily announced without any prior spadework to check out the ground reality. Once announced, the waiver scheme has been executed haphazardly. Lists that should have been out on the information board of the banks are still on the desks and the redressal officers who should have been in every bank are missing. Such apathy is symptomatic of the way we treat our farmers.

Drastic structural changes are needed in the way we treat and regulate our agriculture. This scheme is bad economics. Not just for banks but also for farmers. Bankers are sceptical and predict that the recovery rates will plunge within the next two years. The Indian farmer does not need a dole-out. What he needs is the right remuneration for his efforts and a level playing field.

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