Political competitivism ended up in the electoral promise of farm loan waiver, opening a Pandora's box. The can has many worms. Many sceptics question both the possibilities and extent of loan waivers for farmers. The first farm loan waiver of Rs10,000 crore in 1990 and the 2008 waiver of Rs52,000 crore against the announced Rs70,000 crore carry the odium of misuse and abuse of the scheme. Some microfinance institutions (MFIs) were the beneficiaries and not the targeted farmers, the CAG (comptroller and auditor general of India ) report, 2016 said. All over India, the total amount waived was Rs52,000 crore and the number of beneficiaries was 34.5mn (million).
The Indian economy is largely dependent on agriculture which employs the largest number of persons in the sector. Farmers have not deceived the nation in any year of distress since the ushering in the green revolution. It helped the nation in meeting the requirements during the most acute stress—the pandemic. However, what many would not miss is the size of the farms in India and their productivity levels on one side and the large prevalence of the tenant farmers on the other.
According to the data on agricultural statistics of the government of India, due to the fragmentation of land, the area operated by small and marginal farmers has increased from 19% to 45% of the total cropped area in the 50 years spanning 1961-2011. This would mean that persons of small means and incredibly low capacity to invest in technology and modern practices are engaged in agriculture.
The choice of product shifts took place because of the increase in labour costs during the last decade and a half. But these shifts did not favour the cause of land consolidation. Nor did they improve the marginal productivity of the land. Even in regions of abundant labour supply, crops that do not require intensive input of labour and costly input of well irrigation are chosen.' (My article in the Hindu Business Line dated 6 December 2018).
I am reminded of Polonius from Shakespeare whose gentlemanly advice is that neither a lender nor a borrower is happy and that borrowing dulls the edge of husbandry. His logic is that lending money to friends is risky, because hitching debt onto personal relationships can cause resentment and, in the case of default, loses the lender both his money and his friend. Borrowing invites more private dangers: it supplants domestic thrift ('husbandry')—in Polonius's eyes, an important gentlemanly value.
Borrowing is more epidemic now among individuals, institutions, and nations than in the days when Shakespeare wrote Hamlet. Repayment solutions continue to depend on innovations in financial instruments rather than willingness and ability to repay by the borrowers. Borrowers would like to continue to be borrowers but do not want to repay for one reason or another and lately, the most prominent is that there will be a political write-off by parties that access power. There is one set of farmers who are forgotten by the government for its own reasons and they are tenant farmers.
Do the farmers want adequate loans in time or loan waivers? Do they need more than loan waivers in a changing world encompassing drones, aerial sprays of fertilisers, new technologies, and on top, more income in their hands? What type of agricultural budget do they want? Loan waiver, by no means is a 'please all formula.' Every government has its own budgetary limitations and priorities, leave alone the very need for the waiver. The logic that crores and crores of rupees are being written off for the industry world by the banks and the government writing off farm loans is going to be a fraction of it apart from their ability to help the government with continued production of agricultural and allied activities.
Farmers having overdue loans would not be able to lay claims for further loans to their next season. With rising input costs and technology costs, a farmer's ability to cultivate his farm without a loan is just impossible. Therefore, loan waiver is a gateway for private lending in a big way. Who are these private lenders? Guess, at least 50% of them are the political community and the rest are the merchandise. When the cost of inputs and technology are rising at unheard-of speed, will Rs5,000 or Rs6,000 per acre to a small and marginal farmer keep him at bay from the usurious private money lender? Very doubtful.
Tenant Farmers' Stake
Tenant farming risks also accentuate the demand for write-offs. Tenant farmers' loans are in the nature of gold loans and other forms of short-term credit, rather than crop loans. Tenant farmers' loans can be waived through an affidavit sworn before two witnesses from the same village mentioning the acreage and crop cultivated by them during the period of waiver and the quantum of distress suffered.
Kerala is the only state that has a tenancy law in place with an implementation mechanism. Data on farmer suicides also confirm that they occur more among tenant farm holders and small and marginal landowners growing cash crops like cotton, than food or horticulture crops. Covering the joint liability groups financed by the banks and cooperatives for waiver can remedy the injustice to the tenant farmers.
Combating credit risk in the farm sector rests more on crop diversification and cross-holding of risks between agriculture and allied activities, such as animal husbandry, than waiving bank loans.
Farmers continue to be in distress not because of just the burden of institutional loans against which the waiver is now promised but on account of huge private debt at usurious rates of interest with no credible documentation.
RBI Regulations
The Reserve Bank of India (RBI) has issued a circular in pursuance of the Budget announcement made by the Union finance minister relating to the interest subvention scheme 2013-14. Interest subvention 2%pa (per annum) will be made available to public sector banks (PSBs) and private sector scheduled commercial banks (in respect of loans given by their rural and semi-urban branches) on their own funds used for short-term crop loans up to Rs3 lakh per farmer provided the lending institutions make available short term credit at the ground level at 7% per annum to farmers.'
Interest subvention will not be available once the waiver is announced by the state government and therefore, to that extent the state government will have to bear this additional burden as well.
Farmers Associations' Voice
Now let us look at the recent announcement by the government of Telangana that they would implement the electoral promise with certain conditions. Chief minister A Revanth Reddy announced the waiver in three stages; first, those farmers carrying Rs1 lakh loan, second, those with Rs1.5 lakh and third, farmers with Rs2 lakh loan and all before 15 August 2024.
Leaders of the opposition parties, Telangana Rythu Sangham and the Consortium of Indian Farmers' Associations took exception to the rules framed for availing the loan waiver. Wholesale waiver of loans may result in a miscarriage of benefits to the landowners staying away from the farm and not actual cultivators. The latest information from the print media says there have been many miscarriages of names and crops and areas causing confusion.
The Data:
Neither Aadhaar nor the ration card is valid proof of a farmer cultivating crops, as such data is not revealed by these two cards.
The data put out on crop loans by the state level bankers' committee (SLBC), as of the end of December 2023, indicates Rs1.33 lakh crore was the outstanding credit to agriculture and allied activities covering 16.34% out of the RBI priority sector agricultural credit target of 18%. The loan outstanding against the small and marginal farmers was Rs78,891 crore, short-term production loans of commercial banks was mentioned as Rs49,501 crore and those by the cooperative banks was Rs5,363 crore. Kisan credit card (KCC) saturation for crop loans and allied activities was to the extent of Rs24,753 crore.
Banks extend credit on the basis of pattadar passbooks. The government of Telangana decided to extend the waiver to the small and marginal farmers only against the pattadar passbooks and that too only to those not covered by PM Kisan Yojana where the farmers got Rs6,000 each in three equal instalments. When money to distribute under such a process is limited, it is natural to choose the path of least resistance and seek routes of elimination instead of selection. There are bound to be hits and misses when it is not a universal crop loan waiver.
The Past
Nearly 7mn (million) farmers were earlier benefited under the Rythu Bandhu scheme and these included all types of farmers – rather than whoever reported the cultivation area particulars. Bureaucrats and politicians who had crop loans also got the benefit of the scheme, but the present waiver would be a disadvantage to them.
Regarding rescheduling of long-term crops for which there is demand, such rescheduling is covered by the RBI guidelines and the government can make a demand in the SLBC for such rescheduling if the distress conditions for those crops prevailed.
The virtues of the Rythu Bandhu scheme were that the farmers had liquid cash in their hands to cultivate the next crop. The other most successful and well-validated scheme is Rythu Bima scheme covering every farmer with an insurance of Rs5 lakh for any calamity suffered by the farmer for which the state government was paying a small premium. These two schemes merited appreciation from Niti Aayog, the government of India and several state governments. Quite a few states visited the state to see the benefits of the scheme after discussing with the farmers. In fact, farmers from various states beelined to Telangana to understand the implementation of these schemes. Now, it is history.
Conclusion
While I am a strong opponent of the loan waiver, when rhetoric beats logic, there must be some method by which such benefit should reach the farmers. If one cannot implement the scheme within the season, it is not worth implementing as it would not only let a well-intended promise go in vain but also bring a bad name to the government. Rs31,000 crore was the amount decided for write-off and the government took reasonable time to come to this figure. When I went through the SLBC figures as mentioned above, different calculations came to the surface and the best compromise is on the saturated Kisan credit cards for the crop loans, that amounted to just Rs24,753 crore at the end of December 2023. These are verifiable through the loan documents with the banks and the pattadar passbooks.
Second, the government should make sure that the farmers have income in their hands when they need it because their liquidity is locked up in soil or silo at a time when they need cash and the Rythu Bandhu scheme should reformulate guidelines in consultation with the farmers' associations and continue the Rythu Bima scheme for all the cultivators—the owner and tenant farmers, and this liability would be minimal for the state government going by the above data. In future, investment in farming will take a different turn.
Farmers will focus on increasing productivity per unit of land and per unit of water with the use of technology when the need for more capital would arise and this will also be size neutral. Crop insurance on sound lines that should be farmer-centric and not area-centric similar to the one obtained in South Korea, where the government meets the entire insurance expenditure for the farmers, would be any day a better option to the loan waiver. Here, the insurance cover and parameters for settlement are extremely important and they determine the efficiency of the scheme.
There is no policy for the agricultural sector despite its importance. Innovation in agricultural practices and technology will also make sustainable demands on the limitations in financial resources and the required skills. Marketing, global trade relations, pressures on supply chains, and global commodity market fluctuations will all add to the pressures. Instead of indulging in loan waivers that may give a temporary reprieve, the economics of politics demands more robust agriculture and trade policies. It is labelling, branding, and packing that will trigger consumer preferences. The government will do well to focus on providing assured income and insurance to the farmer and make him an integral part of the economy. NABARD and RBI should give a clear direction on the complex matters covering issue of loans, rates of interest, insurance coverage, interest benefits, and the assistance to the change in the emerging context of export pressures.
(The views expressed are personal. The writer is an economist and risk management specialist and has authored Agricultural Banking (2011) with a foreword from Dr M Swaminathan.)
