Farm Loan Waiver
By Dhurjati Mukherjee
Farm distress is presently a subject of much discussion and debate not just among politicians but also academicians and planners. This has gained more currency, specially after the election results in the three Hindi heartland States, where the rural population voted against the BJP government and there has been protests by farmers due to their social and economic distress. One cannot deny the fact that an estimated 3 lakh farmers committed suicide in the last decade or so due to high cost of farming and low returns apart from crop failures.
Though populist policies followed by political parties have gone for farm waivers, recently the former RBI Governor Dr Raghuram Rajan cautioned against such waivers promised by political parties and instead backed the idea of income transfer as an option to mitigate distress in agriculture sector. Releasing a report on the economic agenda, which was put together by 13 Indian economists based in India and overseas, Rajan observed that it creates enormous problems for the fiscal stability of States.
The statement comes at a time when seven States announced farm loan waivers of Rs 1.8 lakh crore with the newly-elected government in Madhya Pradesh and Chhattisgarh expected to join the ranks of Uttar Pradesh, Punjab, Rajasthan, Maharashtra, Telengana and Andhra Pradesh.
“We need deep-rooted transformation of agriculture, treating it not as a sector that has to be propped up through repeated sops but as an engine of India’s job creation and growth. For that, it is imperative that we thoroughly reform agricultural and land policies. In particular, a key source of agrarian distress in recent years has been that the terms of trade confronting farmers have turned progressively more adverse, partly as a result policies to combat food inflation”, the economists stated in a 14 page note released to the media.
The policy mix for agriculture ranges from strengthening National Rural Employment Guarantee Scheme for the landless to improving the crop insurance scheme. Besides the economists, suggested that the government ensure that farmers receive more of what has been paid by the consumers by improving access to international markets and doing away with the ‘switch on, switch off’ policy for exports. Citing experience of ‘Rythu Bandhu’ scheme in Telengana, the most significant proposal is to shift to cash subsidy scheme linked to land holding based on digitising and identifying plots.
Followed by Dr Rajan’s warning, the Niti Aayog has come up with a slew of measures for the farm sector because as now the policies help only a fraction of farmers and is no solution to agrarian distress. According to its paper it suggested the scope of contract farming, scrapping the Essential Commodities Act and replacing the minimum support price (MSP) with a minimum reserve price (MRP) for auction of grain at the mandis (local maekets). The think tank has emphasised the participation of the private sector in agricultural development, promote agri entrepreneurs and create a policy environment that enables income security for farmers.
Though the suggestions may merit attention, it would have been better if the paper would have gone into the details of the proposals and what immediate measures the government intends to take. The need for more private participation in the farm sector has been a long standing demand but unfortunately this has not materialised as the returns are not attractive enough. Moreover, the scrapping of the Agricultural Costs and Prices Commission and replacing it with a tribunal, which would determine the minimum reserve price has not been well explained.
A certain section of economists feel, and quite rightly, that these measures are too theoretical and do not have much relevance to the real issues at grass-root levels. Most farmers do not get the MSP due to rampant corruption and are cheated by government agencies. It is also difficult for them to shift to value-added crops due to lack of finances. Moreover, at times of high yield, they are forced to sell vegetables below costs of farming as has happened this year in case of onions.
Meanwhile, Rajasthan, Madhya Pradesh and Chhattisgarh, after the new government took over, announced loan waivers, as promised before the elections. In Rajasthan, Chief Minister Gehlot announced waivers of farm loans up to Rs 2 lakhs till November, costing the exchequer Rs 18,000 crore. Earlier in MP, Kamal Nath cleared a proposal for waiving farm loans up to Rs 2 lakhs, which is expected to benefit 34 lakh farmers, whose size was pegged around Rs 35, 000 crore. However, such waivers may not be useful in the long-term because in MP, a study was undertaken which pointed out that farm related non-performing assets doubled in a little over three years between 2014-15 and June 2018.
It is indeed distressing to note that the share of the farm sector in GDP declined from 29 per cent in 1990 to about 17 per cent in 2016 but it remains a major source of employment. According to OECD data, 85 per cent of operational land holdings are less than 2 hectares and account for 45 per cent of the total cropped area. Only 5 per cent of farmers work on land holding larger than 4 hectares, as per the Agricultural Census 2016.
Productivity lags other Asian economies such as China, Vietnam and Thailand and average yields are low compared to other global producers. Wheat and rice yields are nearly 3 times lower than world yields while those for mango, banana, onion or potato are between 2 and 7 times lower than the highest yields achieved globally, says OECD.
In such a situation, the obvious answer is cooperative farming of say three to five small farms and trying to raise productivity. Added to this, diversification from staple crops to value added crops and certain vegetables and fruits would help to boost farmers’ income. It would be ideal if some areas go for contract farming and entrepreneurs come with capital and technology to reverse the trend of declining productivity and falling prices. There is need for political parties through the involvement of panchayats to ensure that either cooperative farming or contract farming becomes a reality and aids small and marginal farmers.
Another significant point missing in the Niti Aayog paper is the emphasis on R&D. The Indian Council of Agricultural Research (ICAR) should reach out to farmers at the sub-divisional levels through panchayats and, in cooperation with the IITs, help farmers with innovative and low-cost farming technologies. Strategies should have evolved for creating infrastructure for watershed development and integrating rainwater harvesting with irrigation, creation of markets and storage facilities. Moreover, there should be some stress on organic farming, not just for those who are interested in exports but also to get higher prices in the domestic market.
Thus, loan waivers may not be the right panacea for revival or rejuvenation of the farm sector. The way farm distress is headed may have a disastrous effect in the near future and thus the question of agricultural rejuvenation must remain a priority. The adoption of the right strategy, whether by the BJP or the Congress, is imperative as it would have a great bearing on their performance in the 2019 elections. An action plan with specific targets has to be brought out as early as possible. — INFA