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Should governments waive farm loans: the Maharashtra case study

19 MLAs were suspended for shouting slogans demanding loan waivers for farmers during presentation of the budget in the Maharashtra Legislative Assembly recently. Legislators earlier had also submitted a breach of privilege notice against State Bank of India Chairman Arundhati Bhattacharya for her comments cautioning against such a policy. The Maharashtra Legislature has been held hostage by the issue with constant adjournments for weeks. Chief Minister Fadnavis met the Prime Minister in Delhi with a delegation of ministers to discuss the issue. He also spoke in the House explaining why the government was not inclined to grant waivers. But the logjam continues.

Maharashtra is the largest economy (GDP-wise) in the country. But also holds the notorious distinction of the highest number of farmer suicides. According to National Crime Records Bureau data, 3,288 farmers in Maharashtra committed suicides in 2015. It would be simplistic to say the magic wand of waiving off debts is a solution to the problem.

NCRB data also breaks down causes of suicide. While indebtedness is the top cause, it accounts for only 20% of the suicides. Other causes include family problems, failure of crop, illness and drug abuse/alcoholic addiction. What is required is a policy that can address these numerous issues.

At the heart of the problem are the falling returns from agriculture. Maharashtra has the highest volatility in prices of agricultural commodities. Farmers bear the brunt of this with instances of them throwing produce such as onions and tomatoes on the roadside as the cost of storing and transporting it to markets exceeds returns from it.  This is due to poor supply chain management resulting from low investment in agricultural infrastructure such as cold storage, ware houses, godowns, rural roads.

There is a requirement for sustainable asset creation in agriculture. Public investment should lead the way, but as the state is facing a severe cash crunch only 11% of the budget was allotted to capital expenditure. With limited resources, the government can either use them to waive off loans or for investment in agriculture. There are strong reasons for choosing the latter.

There are 31 lakh indebted farmers in Maharashtra with overdue loans worth Rs.30,500 crore. Firstly, there is no clear data about how many of these are small and marginal farmers, and thus a blanket loan waiver will benefit wilful defaulters as well. Most of the loans go to the economically prosperous farmers of Western Maharashtra, while rules of financial institutions continue to exclude the small and marginal farmers due to their poor repayment capacity.

Secondly, it will send out a wrong message to the 1 crore other farmers in the state, many of whom might be repaying their debts regularly and might refrain from doing so in the future, disrupting their ‘credit discipline’ as pointed out by Ms. Bhattacharya.

Thirdly, such a loan waiver affects the creditworthiness of farmers. A loan waiver does not nullify their credit history but shows loans as unpaid but waived, making banks reluctant to advance loans to such farmers. Fourthly, it is the commercial banks who stand to gain more by getting rid of a portion of their Non Performing Assets. For cooperative banks who rely on loan repayments to advance other loans, waivers are a mere temporary reprieve. Their credit structure gets constrained in the long run. Lastly, it should be kept in mind that this step has not proved successful in the past. In 2008 a debt waiver of around Rs.71,600 crore was granted nation-wide but it failed to prevent future suicides.

Instead this money can be invested in tackling the drought situation through long term solutions such as the government’s flagship Jalyukta Shivar Yojana that has Rs.1200cr allocation in this year’s budget and improving irrigation for which  Rs.8700 have been allocated. Other areas of focus in agriculture include the improving market linkages through PPP and restructuring of APMC. MGNREGS is also being used for construction of irrigation wells. The government is also looking to develop agro industries such as textile hubs, food processing, horticulture, animal husbandry and fisheries. The total allocation of all projects having an impact on agriculture amounts to about Rs.25,000 crore .

In addition to these general measures, the government has launched a pilot project based on ‘zero farmer suicide’ model in Marathwada and Vidarbha. Formally called the Baliraja Chetana Abhiyaan which is based on the Yavatmal model it consists of more than 100 schemes that aim at holistic socio-economic development of farmers. Recognizing the fact that along with indebtedness, increased aspirations due to societal pressures, family obligations and joblessness of youth are also causes of rural suicides it includes measures such as mass marriages for the daughters of the farmers, counselling to minimize the mental stress of the farmers, boosting the morale of the farmers through health care camps, skill development and training to educated youths for setting up small industrial units and encouraging the farmers to join the village based cooperative credit societies.

The District Collectorate in Yavatmal also took steps such as opening government offices for farmers to market their produce and painting walls with success stories of farmers and motivating slogan. In addition, 200 nodal officers were appointed to supervise implementation of government schemes and entrepreneurship guidance centers were set up.

The results are already showing. Yavatmal saw a drastic drop in suicides rates which in turn led to increased support from philanthropists, NGOs and civil society organisations for these efforts. A unique aspect of the Abhiyaan is that it is spearheaded by Farm Activist Kishore Tiwari who has been appointed to Director of Farmers’ Distress Management Task Force. This shows the wonders that grassroot level experience infused into government policy and lateral entry of knowledgeable individuals into government structure can being about.

Maharashtra’s agricultural growth rate has gone from negative to 12.5% as a result of policy changes over the past two and a half years.The Maharashtra Finance Minister in his speech announced the intention of doubling farmer income in the state by 2021. The main tools for this being water neutrality in every village and 12-hour uninterrupted power supply through separate solar feeders.

The refusal of the Maharashtra government to buckle under pressure is indeed commendable. Debt waivers are political tools and not effective policy instruments. It is hoped that other governments too follow this sensible path, especially in light of the fact BJP election manifestos in Uttar Pradesh and Uttarakhand and the Congress manifesto in Punjab had committed to write off loans of small and marginal farmers.

Paeans to farmers have to be accompanied with concrete measures on the ground. Keeping in mind the impending impact of unpredictable climatic change it is necessary to encourage farmers to adopt scientific farming methods and crop diversification. Safety net through crop insurance can be provided through effective implementation of Pradhan Mantri Fasal Bima Yojana. Additionally, it is required that strong market linkages are established and more small and marginal farmers are brought  into the formal credit bracket by suitably amending rules to ensure loans reach the most needy.

Farmers are not electoral planks, but individuals who toil in the sun so that we can have food on our plates. It’s time our politicians acknowledged that.

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