- GS-2: Indian Economy & Challenges
- GS-3: Issues related to direct and indirect farm subsidies and minimum support prices
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: