Farm reforms

  • IASbaba
  • January 20, 2022
  • 0
UPSC Articles
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  • GS-2: Indian Economy & Challenges
  • GS-3: Issues related to direct and indirect farm subsidies and minimum support prices

Farm reforms

Context: Political signals over the decades have reinforced the informal social contract between State & Farmers

  • An agricultural field has been kept strapped to the national aim of ‘food security’ for so long that many farmers tend to see their role as state-appointed, with inputs assured by governments that must in due course pay for the output of their farms.

What is the Supreme Court observation on Poor credit discipline of farmers?

  • In a lawsuit related to the dismissal of a daily-wage worker by Patiala Central Cooperative Bank the Supreme Court drew attention over an attitudinal problem in our farm sector.
  • Farm loan waivers schemes drive banks to financial distress and possible collapse.
  • No farmers were repaying the loans in anticipation of a loan waiver ahead of Punjab polls.

What is the history and impact of farm loan waivers?

  • Ahead of India’s 2009 general election farm-loan waiver was declared by the Congress-led Centre worth ₹60,000 crore. It was packaged as distress relief.
  • Various states run parties were quick to adopt that ploy.
  • Its lasting effect is visible in the handy tool of politics.
  • Waivers leave loan books of banks in a mess whereby the lenders wait for the government to pay the needful 
  • It also imposes fiscal costs to the government that are usually unaffordable.

How it leads to poor credit discipline?

  • Farm-loan waivers been used in election manifests to win votes.
  • Overtime farmers view these as work bonuses they deserve.
  • Farmers view loan waivers as an unstated pact with the state or as an informal social contract where these loans are mistaken for grants.
  • In some states this serves as a tool for collective bargaining by tillers.
  • This approach is not only bad for lenders but also creates wrong attitudes that obstruct farm reforms.
  • Unless cultivators operate like business units rather than as state suppliers saving this sector from stagnancy will be difficult.

What needs to done?

  • Political parties need to avoid such pre-poll assurance of write offs. This will favour our economy for an even bigger reason.
  • The loans should not be mistaken as grants.
  • The prices set by freely-traded agricultural crops must play the reformist role of signalling scarcities and overflows. This will incentivize farmers to adapt their expenses and exertions to market reality.
  • Insurers and future deals could cushion their risks.
  • Reform-minded states should take up a model farm laws by the Centre. At the same time, the provisions must be designed to secure farmers from exploitation by private buyer cartels.

Connecting the dots:

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