Before diving to the details about loan waiver let’s all get an idea about what actually is loan waiver.
Farm loan waiver: To assist the farmers who are in distress, the Government came up with the process called Loan waiver. In accordance with this, the government will pay defaulted loans taken by the farmers. There is a timeline vis-a-vis when this process took it’s birth but acknowledging those details are meant to eat your time. But dont worry I will fill you about the details in gist/crisp manner.
2016-18: States too have followed the footsteps of Union Government and adopted loan waiver. Ex. Madhyapradesh, Jammu and Kashmir, Tamilnadu, Telangana, Andhrapradesh etc.
Budget -2008: Agriculture Debt Waiver and Debt Relief Scheme (ADWDRS) promised to pay loans taken by the small&marginal farmers and other farmers offering waiving percentage 100% and 25% respectively.
2017- Considering the problems faced by farmers during demonetization, the Budget (17) announced 60 days of interest waivers to farmers.
Arguments in favor:
=>Few people opine that the situation of farmers since a decade(2008-18) have became worse with post-subpime crisis (2008), global financial crisis (2008) ,droughts (2017, 18), and demonetization (2016). These have raised issues like dropping down prices and demand for the products example being textile industry in international market and are forced to sell them in domestic market at cheaper rates
=>In addition to this, the government have came up with the plans of restructuring for loans by corporate borrowers which reinforced support-farmer people to demand for same as debt waiver.
=>Violent agrarian agitations in Maharashtra, Uttarpradesh and Madhyapradesh also made it visible the pathetic plight of the farmers.
=>Farmers are being more prone to Debt Overhang (where all the income earned so far was used to repay accumulated debts) and are forced to use savings/income in buying farm inputs(seeds, fertilizers, pesticides)
Challenges associated with loan waiver:
” Loan waivers undermine credit culture. NPA problem will get aggravated ” __ ex-RBI Governor Urjit Patel
“Farm loan waiver should not form part of election poll promises”__ Former RBI Governor Raghuram Rajan
These are only individual opinions but serious measures are yet to be taken and implemented.
=>Impact on behavior: Loan waiver reduces the hard working capacity and chances for developing negligent behavior/lack of discipline in farmers are more likely.
=>Partial Coverage: Out of 100% loans borrowed by farmers only 60% are from formal sector(banks,NBFCs) and rest of the borrowings are from informal sector (Marwadi, Shroff). So even though government announced loan waiver significant percentage of farmers deprived of benefit.
=>Feedback: Comptroller and Audit General (CAG) commented on ADWDRS which implemented in 2008 ,as it is prone to serious exclusion and inclusive errors. Also Economic Survey-2017 pointed out that loan waivers haven’t contributed neither in accentuating GDP contribution nor in development of farmers.
=>Multiplier Effect: WHO recommended 5% of GDP to health sector whereas the actual allocation was less than 2%.The amount allotted for waiving tantamount to 1.5% of GDP. So it would be justifiable for the government to invest money in the schemes which promotes welfare for majority of populace than in the schemes which have serious implications on other developmental expenditure.
=>Fiscal Deficit: It would be burdensome on state governments implementing the waiver process and there are also chances that a particular state would end up in inflation too. Ex: Report in 2017 by RBI quoted that ₹88000 crores used as loan waiver by 7 States ( Uttarpradesh. Maharashtra etc) notified as a states with inflation.
=>No recognition: Loan waiver focussed mainly on cultivators and the truth that agricultural workers are also being impacted was neglected.
Farmers distress is a real and pressing problem.But the government intervention has hurt more than it has helped.Loan waiver is not a magic wand that could solve the long-standing problems, it could only be used as a temporary relief (like a bandage to serious wound).There are certain issues to be considered in this regard to get ushered in right direction. Like proper identification of vulnerable farmers, enhancing non-farm works, improving technology , expansion of irrigation cover ,focussing on long-term solutions etc.
Hope you have enjoyed the article. Happy reading!