When, prime minister, Modi during his high octane campaign in the run up to assembly elections in Uttar Pradesh [UP] promised loan waiver for farmers [albeit small and marginal/poor] in the state, he might not even have contemplated that state-after-states would be confronted with similar demands. In retrospect, this is precisely what has dawned on the political establishments particularly in states ruled by BJP viz. Maharashtra, Madhya Pradesh, Haryana etc.
The irony is that whereas, BJP had voluntarily made a commitment in a poll bound state, the demand for loan waiver has surged even in states where it was not a poll promise. Those states have been coerced in to granting waivers using the modus operandi of protests and demonstrations.
What is even worse is that farmers’ organizations are not content with loan waiver being granted only to poor farmers. They want this largesse to accommodate all and sundry. For instance, the Fadnavis government in Maharashtra has been forced to agree ‘in-principle’ to consider loan waiver for all farmers.
In some states, even the judiciary has intervened to force write-off of debt of all farmers. For instance, in Tamil Nadu, the Madras High Court [MHC] has given necessary directions in this regard.
The farmers are also cribbing about the quantum of debt that qualifies for waiver. For instance, in UP they want the ceiling of Rs 100,000/- [fixed by government] to be removed. Furthermore, those who have borrowed for uses other than for raising crop [say, for buying a buffalo] or have taken loan from non-institutional sources [informal sector] also want to be covered under the scheme.
Even more damaging, taking cognizance of the government having already announced loan waiver [or about to do so], even farmers who can afford and have been regularly paying their loan repayment installments, have stopped paying with an intent to get included in the club of indebted farmers [many have gone that far to empty the money lying in their bank account so that the bank cannot automatically debit the amount due towards the loan].
The union finance minister, Arun Jaitley has already made it clear that central government won’t extend any assistance to fund the write-off and that the state will have to find money within their budget [this is intriguing as the commitment for loan waiver in UP was made by none other than the prime minister!].
None of the states have the stomach to meet the liabilities thrown up by loan waiver even on the scale announced by the state [e.g. UP:Rs 36,000 crores; Maharashtra:Rs 33,000 crores]. Their finances would be crippled beyond redemption if they were to waive debt of all farmers [e.g. Maharashtra:Rs 100,000 crores]. They would exceed deficit target under the Fiscal Responsibility and Budget Management [FRBM] Act by a huge margin with its attendant fall-out in terms of rating downgrade, increase in cost of borrowings and jeopardizing development and welfare programs.
The current wave of loan waiver sets a dangerous precedent. It gives rise to a cult of non-payment. Ideally, a loan write-off is intended to be a one-time affair to give relief for mitigating consequences of an extra-ordinary situation faced by persons who are ‘genuinely’ in difficulty. But, in the present scenario, the way things are unfolding, it looks as though it would be a recurring affair. So, farmers will get used to not paying even when they have capacity to pay back.
In principle, loan waiver [except under rare circumstances] is bad as it deflects attention from remedying the crucial factors which lead to default. In the context of farmers, it is fall in production when faced with drought or steep fall in price realization in a scenario of bumper crop [as happening currently]. If, the option of loan waiver is available as a matter of routine then, policy makers and administrators will get an excuse for not taking these basics seriously.
This will trap the farming community in a vicious circle whereby inadequate attention to mentioned factors will depress farmers’ income in turn, affecting their ability to pay back loan, increasing debt followed by write-off. And, given that we have elections every year in one state or the other, the fear of losing votes will prompt political parties to ensure that there are loan waivers more often.
Clearly, all political parties [with BJP in the lead] seem to be preparing a ground for a volcanic situation whereby the budgets of most of the state governments will be under perpetual threat of destabilization [exacerbated by other largesse such as power, fertilizer and food subsidies]. Prime Ministers’ intention may be good as he genuinely wants to help poor farmers who have been a victim of wrong policies followed in the past besides the damage caused by vicissitudes of weather. But, he may not even be aware of the dangers inherent in traversing on the chosen path.
Things are slipping out of control with demand for loan waiver acquiring pan-India dimensions involving majority of the farmers and covering all sorts of loans – not just crop loan. Modi may not have intended it but dozens of farmers organizations [many of them having sprung up recently] propped up by opposition parties [they have been desperately looking for an issue to corner the ruling party] are leaving no stone un-turned in making him surrender.
During last 3 years, Modi has succeeded in altering the discourse from ‘doles’ [that gripped ruling establishment – most of the times led by Congress – for decades] to ‘empowerment’ of the masses. For various initiatives taken in this direction viz. ‘Make in India’; ‘Start-up India’; ‘Stand-up India’; ‘doubling farmers income’ etc to succeed, the government – both center and states – will need resources. If, the current trend of farmers’ loan waiver continues, this will substantially diminish funds available for these schemes and set the clock back.
The government needs to handle the current agrarian situation deftly instead of meekly acquiescing in to demands of all and sundry including outright blackmail by vested interest.