Farm reforms

AGRICULTURE/ ECONOMY

• 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:

• Granting Industry Status to Agriculture
• Farm Laws Repeal