With the 2019 Lok Sabha elections in India around the corner, political parties throughout the nation have begun to make poll promises. Apart from the issue of national security, the multiple accounts of farmer distress are among the primary talking points in the 2019 election. In this context, a solution that has often been offered by multiple parties is that of loan waivers. Seeking to alleviate farmer woes, loan waivers are posited as the cure to all their problems, and therefore, held as a necessary measure that needs to be undertaken. Despite several reports claiming that waivers are only a short-term solution for a select group of farmers, there have been very little concrete efforts to implement an alternative, more durable solution(Ramakumar, 2019). This article looks at the waivers not only as a poll promise but also in terms of its usefulness for the average farmer. Further, it examines the solutions that have been offered, like raising the Minimum Support Prices(MSP) as a viable option to bring some much-needed relief to the farmers.
The Rashtriya Kisan Mahasangh, consisting of farmers across the country began a series of protests beginning in June 2018 demanding loan waivers and higher prices for their produce. Their protest in Delhi pushed for a special parliamentary session to discuss these needs. With more than 500,000 farmers protesting and 52% families facing serious indebtedness, these protests speak to the depth of the crisis, as well as provide a glimpse into the troubles faced by these farmers (Saberin.Z,2019). However, this is not the first time that the farmers have demanded loan waivers. The first blanket loan waiver was offered in 1990, providing relief to farmers across the nation. The 2009 election year also witnessed farmer loans being waived to alleviate farmer distress. While these waivers were only for a certain class of cultivators, the results were mixed. It did play a role in helping the Congress government secure a second term, but was not enough to provide a long term solution to reduce their vulnerability to indebtedness (Agrawal and Trivedi, 2019). This has not stopped governments from using loan waivers as an effective poll technique. The outcome of the recently concluded elections in Rajasthan, Madhya Pradesh and Chhattisgarh depended heavily on the promise of loan waivers by the Congress government and helped them overthrow the ruling BJP government. Currently, up to 11 states have waived off farmer loans, and there are demands for a nationwide waiver as well.(The Economic Times,2019) .
Loan waivers seek to clear the debt of farmers, allowing them to start afresh, alleviating their woes and reducing their financial burden. However, policy analysts are divided in their opinion regarding their long term effectiveness. First, loan waivers benefit only a certain section of farmers who have access to a bank account. Thus, the benefits of these waivers do not reach those who require it the most. For instance, only 46.2% of farmer loans are through a formal banking system. The remaining continue to depend on the informal sector which includes self-help groups, landlords, or their friends and relatives. It is implicit that only rich farmers have access to these formal institutions, owing to their higher literacy rates, a higher rate of awareness as well as their ability to access formal bank credit. When loans are waived, these farmers benefit, thereby increasing the income divide between farmers, while simultaneously offering no relief to the poverty-stricken distressed farmer (The Economic Times, 2018).
However an alternative to these type of waivers are those that are offered by the state of Kerala, which provides relief to farmers that rely on both the formal and informal sectors for bank loans. The Farmers’ Debt Relief Commission Act, 2006 in Kerala fixed a fair rate of interest for informal institutions and could reduce or waive off the loans after a detailed hearing between the two parties. This ensured that even the small and marginal farmers who have to rely on creditors could receive the benefits of loan waivers (Ramakumar,2019). An alternative solution is provided by the state of Telangana, which provided basic income at the beginning of the crop season to the farmers when it is most required to buy seeds and equipment. In the absence of this scheme, farmers had to rely on unscrupulous moneylenders who charged exorbitant interest rates plummeting the farmer into serious debt.
Another issue with loan waivers is the reduced access to fresh loans from banks. Banks deem farmers to be less creditworthy and are thus less likely to renew loans to these farmers. However, this problem has more to do with the bureaucratic system and less with farmers. For instance, a CAG report in 2008 revealed that 34.8% of farmers did not receive a debt waiver certificate, which prevented them from receiving a new loan when required (Ramakumar,2019). It compels them to then rely on informal sectors, which prevents them from gaining access to future loan waivers as well. Thus, this reduced access once again makes it increasingly difficult for farmers to acquire future loans, revealing the long term shortcomings of this policy.
A hike in the Minimum Support Prices(MSPs) is another demand professed by the farmer unions, hoping that these will help provide relief to the farmers. According to the scheme, a hike in MSPs ensures a 50% profit over the cost of farming, enabling the farmer to receive a higher price for the crops. Practically, these MSPs once again benefit only some farmers. Corruption in the agricultural sector has made it impossible for farmers to sell crops at MSP. For instance, while the farmers of Rajasthan and Madhya Pradesh sold their crops at MSP, farmers in the North East were unable to do so. Another issue is that only certain crops are assigned MSP, which implies that farmers raising other crops suffer losses on their produce. For instance, in October 2018, the market price was lower than the MSP for 12 out of 14 of the crops. The differential rates of demand and supply make it difficult to regulate prices, and often the presence of middlemen further reduces the money generated by selling the product. This means that the farmers suffered great losses while selling their produce (The Wire,2019). Additionally, MSPs are guaranteed by the government, but only 6% of Indian farmers actually sell their crops to the government directly. The rest rely on middlemen and the private sector, all of which are profit-oriented and take undue advantage of the farmers.
Loan Waivers and MSP hikes certainly provide relief to the farmers, but their reach is limited and their benefits are short termed. In order to provide long term sustainable solutions to agricultural distress, it is imperative to introduce structural changes within the system. For instance, the government can enforce the Bhavantar scheme of Madhya Pradesh throughout the nation, which compensates the farmer who sells his produce below the MSP. Again, this cash should reach the farmer in time. Appropriate measures must be taken to eliminate corruption in the value chain. Currently, only one-third of the price paid by the consumer reaches the producer, indicating that the farmer receives extremely low returns on his investment (Barendra Bhoi, 2018). Finally, the farmer also bears the brunt of the rising diesel costs that are required to run the machinery, and subsidies should be enforced to that effect.
There is a wide disparity in the number of farmers with respect to their contribution to the nation’s GDP. While India continues to be a primarily agriculture-based economy with more than half of the nation depending on it directly and indirectly as a source of livelihood, it contributes only 17% to Indian GDP. This speaks to the structural inequalities inherent in the system itself. While India continues its growth to becoming a superpower, the underperformance of the agricultural sector will hamper its progress. In this context, the policies of the government must ensure measures designed to reduce the burdens of the average farmer.
Avinash Giri & Shristi Sinha, T. (2019). Devinder Sharma on India's Agriculture Crisis. [online] The Diplomat. Available at: https://thediplomat.com/2018/06/devinder-sharma-on-indias-agriculture-crisis/ [Accessed 10 Apr. 2019].
Loan waivers: No silver lining for farm sector. (2018, December 26). Retrieved from https://economictimes.indiatimes.com/news/economy/agriculture/loan-waivers-no-silver-linin g-for-farm-sector/articleshow/67249983.cms
Ramakumar, R. (2019, January 25). Examining farm loan waivers. Retrieved from https://www.thehindu.com/opinion/lead/examining-farm-loan-waivers/article26093483.ece
Saberin, Z. (2019). Why are Indian farmers protesting?. [online] Aljazeera.com. Available at: https://www.aljazeera.com/news/2018/06/indian-farmers-protesting-180604194005599.html [Accessed 10 Apr. 2019].
Structural farm reforms are key. (2019). Retrieved from https://www.thehindubusinessline.com/opinion/structural-farm-reforms-are-key/article22753070.ece
The Economic Times. (2019). Farm loan waivers: Why they don’t make sense. [online] Available at: https://economictimes.indiatimes.com/news/economy/policy/farm-loan-waivers-why-they-do nt-make-sense/articleshow/67121007.cms?from=mdr [Accessed 10 Apr. 2019].
The Wire. (2019). Farmers' Crisis: Are Loan Waivers, MSP Hikes, Assured Income the Solutions?. [online] Available at: https://thewire.in/agriculture/farmers-crisis-loan-waiver-msp-income-support [Accessed 10 Apr. 2019].
Image credits: Reuters
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