Issues related to direct and indirect farm subsidies and minimum support prices
Inclusive growth and issues arising from it.
General Studies 2
Government policies and interventions for development in various sectors and issues arising out of their design and implementation.
Welfare schemes for vulnerable sections of the population by the Centre and States and the performance of these schemes; mechanisms, laws, institutions and bodies constituted for the protection and betterment of these vulnerable sections
In news: UP CM recently announced rs. 36000 crore farm loan waiver which could trigger similar decisions by other states such as Punjab and Maharashtra governments. RBI governor sounded the alarm on state governments waiving farm loans and called for consensus to do away with them to avoid damaging the national balance sheet. Similar concerns were shown by SBI Chairman. This generates curiosity in person whether loan waivers are good or bad. Let us have a look.
Waivers- good or bad?
It is a combination of bad politics and bad economics.
Bad politics because it essentially may win some votes but is not sustainable. Political parties need to have better development mandate to fight in elections and mere financial incentives won’t be necessary in future to win votes.
Clearly there is no credit in economics. Loan waiving is an action where credit climate is vitiated. Any decision of that nature will have consequences on states fiscal and also entire credit market.
But it is not absolutely true all the time as it is a contextual matter- how the farmers have come into this situation, what will help them now to come out of it, if loan waiver is a feasible option and if yes, where the loans have to be waived. It can be a sub optimal policy which can be termed as good policy for short term measure. However, to have long term measures for a good policy, the Swaminathan Report should be implemented. Some recommendations are:
Major causes of the agrarian crisis are: unfinished agenda in land reform, quantity and quality of water, technology fatigue, access, adequacy and timeliness of institutional credit etc.
Land reforms: to distribute ceiling-surplus and waste lands; prevent diversion of agricultural land & forest to corporate sector for non-agricultural purposes; ensure grazing rights & seasonal access to forests to tribals and pastoralist etc.
Credit supply- expand the outreach of Credit facilities System; issue Kisan Credit Cards to women farmers; establish an Agriculture Risk Fund to provide relief to farmers in the aftermath of successive natural calamities, etc.
Improving competitiveness of small farmers improvement in implementation of Minimum Support Price (MSP); MSP should be at least 50% more than the weighted average cost of production etc.
Development of measures to reserve traditional rights of access to biodiversity and conservation, enhancement and improvement of crops, farm animals & fish stocks through breeding, etc.
Create employment: relatively more labour intensive sectors and inducing a faster growth of these sectors and ensuring that the net take home income of farmers should be comparable to those of civil servants.
Supporting the farm loan waivers
If the farming is not supported in the way it should be, a situation comes that on an average the income of farmers is so low that their daily survival becomes a problem. Instead of solving the problems by reaching out to the rootcause, knee jerk reactions are given for it which last temporarily.
Not the only obligatory– The farmers feel if the industrialists don’t have any obligation towards them if the farmers have the obligation to produce food grains. The farmers are out of tax structure as they are contributing the essential food grains. But it is not entirely true. The farmers equally contribute to tax revenues by means of indirect taxes.
Class biasness– Though it is widely publicised but the technicalities is not seen that in UP, there are 2.15 crore farmers but the loan waiver is only for 80 lakh farmers. The industrialists and corporates are given exemptions of around Rs. 1.40 lakh crores and incentives worth Rs. 8 lakh crores. So sophisticated words like incentives for industrialists and demeaning words like ‘loan waivers’ for farmers are used to address them.
Stopping suicides-In previous government, there were average 48 suicides in 24 hours which has increased today to 52.
Increasing purchasing power– More than 60% of Indian population depends on agriculture and if their purchasing power goes down, the economy or industrial cannot be revived. It is often marked that growth in rural economy is reflected in overall economic growth more prominently. Thus, government has to take note that industry is run by people who have purchasing power and not machines.
Against the farm loan waivers
The state has responsibility towards its subjects, farmers particularly. But that responsibility has to be borne not by a corporate banking system’s money but by state exchequer. What is happening is that loan of government responsibility is transferred to corporate banking system and thereby vitiating the credit climate system.
In UP, the state departments are asked to float bonds and those will be introduced in the market. UP already has Rs. 70000 crore bonds in the market whereas its state deficit is 60000 crore. Hence these are unsustainable economic situations which require proper research, planning and execution.
There are tax exemptions for industries and big corporates but not loan waivers. The tax payers’ money are for public welfare which should primarily go to infrastructure building, education, health etc. as they have long term impacts on the society. With the farm loan waivers, lot of money goes into unproductive means. This causes moral hazards for economics and pressure on everyone.
The three main banks to suffer are SBI, PNB and Allahabad Bank along with 11 other banks which are largest credit provider in crop loans in UP. When loan waiver happens, banks become more reluctant in providing farm loans in future. Then the farmers goes to moneylenders and get harassed by it for long term.
It is agreed that farmers are very important in the economy. But so are MSMEs, services sector, large industries etc which impact the economy. So all are equal stakeholders in gaining development benefits. It would have been better if there were subsidised loan than loan waivers.
There is a need to address the rootcause of the problem. Farm loan waivers are sub-optimal and short term solution as some of the symptoms of the crisis are addressed and not the origin. But in medium and long term, the recommendations of Swaminathan committee needs to be looked again and implemented. Government is taking many steps such as:
Strengthening SARFAESI Act
Putting Insolvency and Bankruptcy Code 2016 in place.
Much of the agricultural subsidies that go to agriculture sector is not going to farmers and going to companies. Nobody in financial sector has ever recommended a waiver in corporate sector. What is widely recommended and endorsed is that a fair cut has to be ensured for the promoters. If the promoters want to get out of bad loan situation, they must take cut so that stressed asset is resolved in a manner that those who has destroyed the asset is not going scotfree.
There is a need for sustainable and durable strategy for recovery in farming but not by loan waivers. The real issue is how to take away the surplus workers in farming sector to more productive sectors in economy. This will happen through education and skilling.
In last three years, 3.5 lakh farmers have committed suicide and daily the numbers are increasing. The Swaminathan committee report has to be implemented. Farmers need the price they had been promised, give them agricultural subsidies for seeds, fertilisers, diesel and water etc. with right market, then there will be stop on farm suicides too and no more loan waivers will be required.
Connecting the dots:
Are farm loan waivers justifiable for betterment of farmers? Analyse
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