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.
