• 8

  • Likes

Ayodhya nahi, Karzi mafi chahiye’ (We don’t need Ayodhya, we need a debt waiver) captures the sentiment of the agricultural community that finds itself in a precarious position. With falling prices for their produce and heavy debt, an average kisan is trapped in a distressful situation. Their anguish found popular expression when they led a protest march to the Parliament in November 2018. Despite not announcing a blanket nationwide loan waiver, the pre - electoral interim budget made it a point to address the agricultural situation of the country.

The Modi government was under pressure to announce a national loan waiver given that states like Madhya Pradesh, Punjab etc. had announced state loan waivers. India’s Debt Waiver and Debt Relief Scheme for Small and Marginal Farmers (2008) was one of the largest household debt relief programs in history. The program waived & Rs.715billion of agricultural debt issued by commercial and cooperative banks between 1997 and 2007. The program covered all agricultural loans in India that were overdue at the end of 2007 and remained in default until February 28, 2008. Martin Kanz, an economist at the World Bank studied the effect of this waiver on rural households. He found that there was no substantial increase in investment because most households viewed the waiver as a short - term solution addressing past distress. He found that most households worry about the reputational consequences of non - repayment of debt and future impediments to the flow of credit, leading to almost no change in investment expenditure (Kanz, 2012).

Loan waivers intensify the problem of moral hazard. If farmer A’s loan is waived, farmer B might be reluctant to pay back the loan in the next year expecting the government to provide a loan waiver even if he has the ability to pay back the loan. Former RBI Governor, Urjit Patel, also expressed his concerns about the impact of loan waivers on honest credit culture and the nation’s balance sheet. Karur Vysya Bank chairman and CEO P.T. Kuppuswamy had reported farmers’ shifting of accounts to nationalised banks well before elections, expecting loan waivers.  “We were wondering why they are shifting the accounts and then farmers came and told it’s an election year. Definitely there will be a write off. If it’s a private sector bank then you might not get a waiver,” he said. (Chikermane, 2017) Majority of the small and marginal farmers do not even benefit from farm loan waivers as they only cater to formal loans. This increases the fiscal strain on the government’s purse strings and a widening fiscal deficit crowds out private investment. Big and mid-size farmers (with more than two hectares of land) remain the biggest beneficiaries of farm loan waivers. Given these disadvantages of a farm loan waiver, it is imperative that the government explores policy alternatives to address the problems faced by agriculture in India. 

The Pradhan Mantri Samman Nidhi scheme - introduced in the interim budget 2019 seeks to provide Rs.6000 to small and marginal farmers with a landholding of size less than 2 hectares in three installments. The idea that smaller the size of the landholdings, greater the need for income support has been recognized by the government. The programme would be made effective from December 1, 2018 and the first instalment for the period up to March 31, 2019 would be paid during this year itself. The government has allocated Rs.20,000 crore rupees in the fiscal 2018-19 and an annual expenditure of Rs.75,000 crore in the fiscal 2019-20. The government has developed a portal to implement the scheme. The states have to upload the data of the beneficiaries on the portal. The Ministry of Agriculture and Farmers’ Welfare will directly credit the benefit in the accounts of the beneficiaries. The amount will be reached within 48 hours of the release. The Jan - Dhan Yojana, government’s flagship financial inclusion scheme will contribute greatly to the success of PM KISAN as the scheme provides direct benefit transfer into the accounts of the beneficiaries. (Bhutani & Et., 2019) According to the Press Information Bureau (PIB), under the Pradhan Mantri Jan-Dhan Yojana (PMJDY) Rs.31.20 crore accounts were opened with aggregate deposit balances of Rs.75,572.09 crore as on 28.2.2018. Under the centrally funded Digital India, National Land Records Modernisation Programme, states were required to carry out the digitisation of the land records. According to data from the Ministry of Rural Development, only 10 states have integrated the digitised records with banks. This becomes a serious bottleneck in the successful implementation of the scheme. To ensure that there are no leakages, the state governments should update the land records and link them to the bank accounts of the beneficiaries (Kulkarni, 2019).

According to the 2015-16 Agriculture Census, there are over Rs.12.56 crore small and marginal land holdings in the country and their numbers have trebled in the last four years due to growing fragmentation among families. This has resulted in the average landholding size to fall by 50% from 2.28 hectares in 1970-71 to 1.08 hectares in 2015-16. The government’s scheme could result in a further fall in the size of the average landholding as an attempt to avail the benefits of the scheme (Kulkarni, 2019). Further agricultural economists like Sukhpal Singh, Professor at IIM Ahmedabad, are calling the scheme a drop in the ocean and that the government has wrongly assumed that there are three cropping seasons in India and hence, the three instalments. The reality being most of the small and marginal farmers in the rain fed areas do not even cultivate two crops. Targeted schemes such as PM KISAN, Rythu Bandhu etc. provide benefit to a group of identified beneficiaries unlike Universal Basic Income (UBI), an idea tabled in the 2016 – 17 Economic Survey. Such targeted schemes are prone to a number of errors, such as errors of exclusion and errors of inclusion. Households that should be beneficiaries are left out, and those that should not be beneficiaries are listed in. In India’s case, tenants cultivate land but are excluded as they do not own the land. Agricultural labourers are left out because they neither own nor operate land. (Ramakumar, 2019) Nonetheless PM KISAN is a step ahead with regards to UBI.

Having said that, small and marginal farmers, the targeted group of the scheme are also one of the most vulnerable sections of the society. This is evident by the fact that natural calamities can cause an income loss of approximately 12% to 15%, lack of marketing facilities reduces their income by 15% to 20% and a glut in the market can wipe out their entire profit. So, the farmer can use this additional income to purchase insurance, better quality inputs, children’s education, to repay existing loans, to store the produce until market prices are favourable, purchase insurance etc. (Kakra, 2019). Another positive outcome that may result from the assured income support provided under the scheme could be the boost in productivity and the youth may be motivated to start their own enterprises or take higher education. This will move them away to non – farming sources of employment. This is a much - needed outcome given that there is a lot of disguised unemployment in agriculture. One criticism of the scheme has been that it will lead to increased consumption of alcohol, to avoid this, a social engineering mechanism needs to be put in place. (Ghosh, 2019)

Odisha’s recently notified KALIA (Krushak Assistance for Livelihood and Income Assistance) presents a model worth emulating. All farmers will be provided Rs.10,000 per family as assistance for cultivation. Each family will get Rs.5,000 separately in the Kharif and Rabi seasons, for five cropping seasons between 2018-19 and 2021-22. The scheme does not impose any restriction on the size of the landholding. Further, the scheme does not leave out landless labourers. 10 lakh landless households, specifically the SC and ST families will be supported with Rs.12,500 for activities like goat rearing, mushroom cultivation, beekeeping, poultry farming and fishery. (Patnaik, 2019)

Agrarian distress presents a serious policy dilemma which needs to be cracked. The effect of Income Support programmes like the PM KISAN on the amelioration of rural distress remains to be seen but the need of the hour is to find sustainable solutions to the challenges faced by agriculture in India which eliminate the need for loan waivers and help increase the productivity of Indian agriculture. One of the possible solutions to deal with falling output prices can be to increase India’s foreign trade in food grains. Given the necessity to ensure food security and to keep prices under check, India restrictively allows the export of farm sector output. Food grain production in India touched an all-time high of 280 million tonnes during 2017-2018 and this glut led to depressed prices. Hence, there is a need to follow a liberal trade policy and put in place the necessary infrastructure to facilitate exports. (Banik, 2018) There is a need to improve the storage facilities but the fact that there is excess grain lying in the government warehouses in times of shortage points to the poor delivery mechanism. The government should aim at procuring an average amount of food grain with positive amounts in periods of surplus and negative during a shortage (that is the release food grain to keep food inflation in check and meet the required demand) instead of procuring in every period to prevent market distortions.

Without mechanization, agriculture remains a back-breaking activity and technology is required to increase the yield to feed our growing population. There is an urgent need to enhance rural infrastructure and irrigation facilities. Precision farming (PA) may provide a way to do it. PA is the application of the precise and correct amount of inputs like water, fertiliser, pesticides, etc., at the correct time to the crop, to increase productivity and maximise yields. Together with the use of GPS and appropriate software, PA provides the farmer with the current status of the crop. Combined with drip irrigation and the use of biofuels, this method is ideal for small farm size. In countries like Japan, drones are being used to spray fertilizers. With the help institutions like the IITs and NITs, such technology can be developed in India indigenously. (Rajvanshi, 2018) This can provide a sustainable solution to agrarian distress. Lack of irrigation coverage leads to crop failure in years of bad rainfall. This can further be addressed by enhancing the spread of crop insurance. Insurance companies can increase awareness among the farmers about the latest research in agri-tech to improve crop protection. Financial literacy will allow them to take advantage of insurance as they will know about the various ‘Bima’ schemes. Another problem that plagues agriculture is the presence of middlemen. Farmers often are not aware of the fair price for their produce and end up selling it for lower prices to the middlemen. The government floated the idea of e - mandi, a platform where farmers could sell their products online without the interference of middlemen but small and marginal farmers often lack adequate storage facilities and are often not so technologically abled.

It is necessary that the policies framed are not detached from the ground realities and the focus should be on finding a sustainable solution. How effective PM KISAN will remain to be seen but the government needs to ensure that the policies are effectively enforced and are not caught in the web of corruption and bureaucracy.


Banik, N. (2018, September). Is Loan waiver a panacea for Rural distress?. United Nations Economic and Social Commission for Asia and the Pacific.

Bhutani, A.K., Satpathy, T. & Alagh, Y.K. (2019, February 8). Will the 6000 rupees farmer payout help? The Hindu. Retrieved from: https://www.thehindu.com/opinion/op-ed/will-the-6000-farmer-payout-help/article26206750.ece

Chikermane, G. (2017, May 11). Are loan waivers breeding a defaulter nation?. Observer Research Foundation. Retrieved from: https://www.orfonline.org/expert-speak/are-loan-waivers-breeding-a-defaulter-nation/

Ghosh, N. (2019, February 7). PM – KISAN: A small step in the right direction. Business Line. Retrieved from: https://www.thehindubusinessline.com/todays-paper/tp-opinion/article26199656.ece

Kakra, A. (2019, February 1). Impact on Agriculture. Business Line. Retrieved from: https://www.thehindubusinessline.com/economy/agri-business/impact-on-agriculture/article26153742.ece

Kanz, M. (2012, November). What does debt relief do for development? Evidence from India’s bailout program for Highly – Indebted households. The World Bank.

Kulkarni, V. (2019, February 1). Income support scheme could fragment landholdings further. Business Line. Retrieved from: https://www.thehindubusinessline.com/economy/agri-business/income-support-scheme-could-fragment-land-holdings-further/article26154814.ece 

Mehra, P. (2019, January 31). The case for Universal Basic Income. The Hindu. Retrieved from: https://www.thehindu.com/opinion/op-ed/the-case-for-minimum-basic-income/article26131268.ece

Patnaik, S. (2019, January 25). KALIA launched: How Odisha new scheme supports farm community. The Indian Express. Retrieved from: https://indianexpress.com/article/explained/kalia-how-odisha-new-scheme-supports-farm-community-with-payments-5540259/

Rajvanshi, A.K. (2018, October 24). Precision farming can do wonders for Indian farming. The Economic Times. Retrieved from: https://economictimes.indiatimes.com/news/economy/agriculture/precision-agriculture-can-do-wonders-for-indian-farming/articleshow/66345065.cms

Ramakumar, R. (2019, March 1). Crumbs for farmers. Frontline. Retrieved from: https://frontline.thehindu.com/coverstory/article26246743.ece?homepage=true&fbclid=IwAR1Ih1XdqYhZkqLP9fwmJP1ZzCxBPf9e2yl19_KKdsrEi6YcDw-32kKEEJo

Image credits – The Fiscal Times

Share this article

Written By Premansh Sahni

I'm an undergraduate economics student at Lady Shri Ram College for Women and I love writing about finance and economy.

Leave A Reply