By Dr Anushka Kulkarni
The rapid drop in the prices of farm goods, even after a year of bumper production has led to farmer distress and protests in Maharashtra. As a solution, the state government announced a loan waiver of Rs. 34,022 crores, benefitting about 36,10,216 farmers. Regionally, it would assist more farmers from Vidarbha, Marathwada, Ahmednagar, Jalgaon and Pune.
Discontent in the state
There are a lot of farmers who are not satisfied with this decision. After the declaration of the number of region-wise beneficiaries, many objected as they were not included as claimants for the loan waiver.
When CM Devendra Fadnavis introduced the scheme, it was estimated that amongst the 137 lakh farmers in Maharashtra, 90 lakh would benefit by getting about a maximum of Rs. 1.5 lakh, which they have borrowed from nationalised and district cooperative banks. In this scheme of Rs. 34,022 crores, Rs. 4600 crores were allotted to farmers whose writ off would not exceed 1.5 lakh. The government declared that 3.5 lakh farmers would benefit under this category, but at present, it has about 8 lakh claimants. If the state government has to pay all these farmers, then the amount will increase to Rs. 7400 crores. This would, in turn, raise the total amount of loan waiver. Thus, questions arise about which data the government had considered before announcing the loan waiver.
Loopholes along the way
In the last two years, there are about 17.5 lakh small and marginal farmers in Maharashtra who have taken loans amounting to Rs. 2,150 crores from government recognised money lenders. But their outstanding loans will not be covered through this recently declared loan waiver scheme, which has left a number of needy farmers in the lurch.
This scheme does lead to a positive effect on the farm economy, but only on a temporary basis. The repayments that would be waived can definitely help the farmers to retain their income but their future credit availability is not assured. The farmer is now a risky borrower, and thus, getting loans from the same bank would be difficult. This will lead to a situation wherein the farmer will have to go to a private money lender.
One of the major drawbacks of the policy is its generalisation, which is done so that the policy makers can easily formulate an eligibility criterion and a waiver policy. However, we cannot generalise farmers and lands under a common category. The problems faced in arid regions are different than those under irrigation, or those that are rain dependent. Hence, a common policy for all will not suffice.
Rural credit at risk
Previous loan waiver packages include the Rs. 10,000 crore scheme that was introduced in 1990, the Agriculture debt waiver and debt relief scheme announced in 2008, and the Rs. 40,000 crores Runa Mafi scheme that was introduced in Andhra Pradesh in the year 2014.
These schemes of the past have been a costly affair for banks who gave out agriculture loans as well as for the economy at large, thereby affecting the rural credit. If the loan waiver scheme is successfully implemented, commercial banks would face a loss of about Rs. 11000 crores. This would be from the penal interest, unapplied interest and other charges which will not be reimbursed to the banks by the government.
A maze of confusion
The ratios and the criteria formulated by the government to grant loan waiver to the farmers has led to a lot of confusion. A farmer gets seed loan every year. The perplexity of the entire scheme has created problems for the farmers in getting their seed loans. As the rains this year is not as expected, the farmers will have to do their seeding again. It is questionable if this debt ridden government is in the position to give additional seed loans to the farmers.
The loans that were given to farmers were majorly by the nationalised banks. The number of these loans has increased from Rs. 34,100 in 2014-15 to Rs. 54000 crore in 2017-18. Currently, the government expects that the nationalised banks would come forward to help the state to benefit the farmers, but the banks still have not decided anything in this regard. Hence, the state government is left with the only option to ask the central government for assistance. The state now wants the central government to give instructions to the RBI to allow the nationalised banks to lend loan waiver packages.
The way ahead
To make farming sustainable, the real issues that lead the farmer in debt situations need to be addressed, instead of announcing loan waiver schemes. The state needs to work on having financial institutions that are transparent and accountable. Also, to have better productivity, there is a need to bring the farmers close to technology.
For the creation of a sound credit policy, it is necessary for the policy makers and the cost and prices commission to look at the needs and consumption of the farmers. Mitigating the risk of farmers by providing them with proper insurance schemes like the weather insurance, crop insurance and asset insurance could be a better alternative than introducing loan waiver packages. Additionally, accelerating the investments in infrastructure, especially in regions that are rain dependent, are also required for increasing agricultural productivity.
The state government of Maharashtra has plans for increasing the agriculture productivity by introducing cluster farming with the help of agriculture companies, and by attracting investments through international financial institutions. It has also decided that there would be provisions made to give advanced farming machinery on hire to small farmers, which will help in accelerating agricultural production. Once implemented, these plans could benefit the farmers possibly more than loan waiver schemes.
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