Agriculture Sector is considered as primary sector of the Indian Economy as a large portion of the population is dependent on agriculture and allied activities for their survival. Farm Loan Waiver scheme is among the many steps that have been taken to address the issues of farmers. In the past few years, looking at the challenges prevalent in the agriculture sector, many inhabitants of rural areas have migrated to urban places in search for jobs in manufacturing and service sector. Due to this, the number of people employed in agriculture sector has sharply reduced. But we are wary of the fact that agriculture sector fulfills the basic requirement of ‘Food’ for the population. Agriculture Sector is considered as ‘Prime-Mover’ of the economy and is also categorized as ‘Priority-Sector’ for financing various activities.
Farm Loan Waiver Scheme in India
Banks provide following kinds of credit facilities for farmers:
- Kisan Credit Cards
- Loans for establishing cold storage facilities
- Loans for poultry farming, sheep & goat rearing
- Loans for dairy and milk products
- Loans for purchase of tractors and farm equipments
Agriculture in India is categorized as Priority Sector and the loans are sanctioned at a lesser rate of interest. The income generated from farm sector and other activities attached to it also enjoy exemption from income tax besides other benefits of subsidy.
There are plethora of challenges in the farm sector – scanty rainfall, poor monsoon, attack from pests, non-availability and ignorance to the use of fertilizers, lack of modernized farm equipments. Due to these issues, farmers who avail credit facility from financial institutions are unable to repay the loans on time. This results in loan becoming NPA (Non-Performing Asset). Such NPAs of agriculture loans are waived by centre as well as state governments to reduce the financial hardships of the poor farmers.
Farmers avail credit facility from many institutional as well as non-institutional sources. The institutional sources include banks and financial institutions while non-institutional sources comprise money-lenders and other non-regulated intermediaries who do not favor waiver scheme of the government. Availing credit facility from such sources and defaulting on them puts the farmer in great financial strain and paves way for incidents of suicides which raise alarm bells about the distress of the Indian farmers.
Pros and cons of farm loan waiver scheme
Farm Loan Waiver may be a solution to the problems of the farmers but it does not assure of the non-occurrence of similar situations in future. Further, waiver poses certain threats to the economy as a whole and the effects could be beyond imagination. On one hand, government is focusing on providing housing, employment, framing regulations for wages and remuneration to protect the interest of migrants and laborers, and on the other hand, it is giving a nod to loan waiver schemes in which a huge booty, amounting to crores of rupees would be required and whose end result could be devastating for the economy.
The present scenario of loan waiver caters to KCC only, ignoring all the agriculture term loans and various other types of loans. The centre point of movement being carried out in different states is that different states have varied percentage of exposure to agricultural activities. Certain states yield good harvest owing to favorable climatic conditions while certain states have a poor yield due to non-favorable factors for agriculture. Hence the number of bad agricultural loans varies across states.
Secondly, states have their own budget for planned and non-planned expenditure based upon which developmental activities are carried out. Variety of exposure to agriculture loans and waiver will pose varied degree of burden on the states, since it has been specified by the centre that states should bear the burden of waiver from their own treasury.
According to RBI Governor Dr. Urjit Patel, farm loan waiver distorts wise credit culture of the banking industry and affects the national balance sheet. The farmers who have the ability to repay loans on time are inspired to default on loan repayments with a hope of announcement of such schemes in future. Hence the money which could have been utilized in other developmental activities gets diverted in waiving loans, a part of which does not deserve to be waived at all. Moreover, waiver schemes strains the pocket of tax payers since the tax payers’ money is utilized for waiving of loans.
Farmers in many states may be seen protesting for waiver as well as a long-term solution to their problems. Waiver may not be a solution to the put an end to the ever increasing problems faced by the agrarian population as in spite of a good harvest; they do not reap benefit of a fair price in the market. Their situation still remains vulnerable and the cost of waiver poses a heavy burden on the treasury of states and as well as centre. According to economists, if all political parties keep promising of loan waiver to farmers, then by 2021, the cost to be borne by the exchequer may reach a whooping Rs. 2,57,000 Crores, which would be 2% of the GDP.
As a long term solution, India needs special public investment to ensure sustainable development of the farm sector. Problems like reduction in irrigated land, reduction in level of water-table, ground water pollution have become a cause of concern.
Agriculture sector has immense potential to take the economy on growth trajectory; the prime requirement is to provide modernized farm equipments and other necessary inputs to the farmers to yield good results in Indian as well as International market. If the investment equivalent to the amount of loan waived is invested in developing and modernizing the farming sector, situations of loan waiver might not occur in future and farmers would not have to end up their precious lives. This step may not be favorable to many political parties who support such schemes for their vote bank but this will certainly be in favor of the economy and its stakeholders. This should be the aim of policy makers as well as the elected leaders to take such steps which lead to permanent solution of the problem instead of temporary and partial solution.