The waiver of farm loans worth Rs 70,000 crore about a decade back by the then UPA – dispensation with an eye on the impending general elections in 2009, had a debilitating effect on the finances of the union government [the fiscal deficit during 2008-09 was in excess of 6%] While, this should have raised an alarm bell but, political parties of all hues do not seem to have learnt any lesson.
Early last year, the BJP ruled government in Uttar Pradesh [UP] granted a mammoth loan waiver for small and marginal farmers costing the exchequer Rs 36,000 crores. This was followed by the by JD [Secular] led coalition in Karnataka granting an equally massive about Rs 40,000 crore waiver early this year.
Currently, even as election in 4 major states are under way, the monster of competitive populism is raising its head yet again. Whereas, in Madhya Pradesh [MP], Congress has promised waiver of all farmer loans up to Rs 200,000/- , BJP has given similar promise to farmers in Telengana. The former has also promised ‘unemployment allowance’ of Rs 10,000/- per month to a person without job.
With the union government ruling out any financial assistance [in the context of funding largess e to UP farmers, finance minister, Arun Jaitely had – as a matter of policy – made it abundantly clear], implementation of these promises will seriously destabilize the budgets of respective states, forget their ability to stick to the target under the Fiscal Responsibility and Budget Management [FRBM] Act.
The loan waiver being announced before every election – almost as a religious practice – is pregnant with disastrous socio-economic consequences in the medium to long-term. This is hows things are expected to pan out.
First, a loan waiver changes the psychology of a farmer who instead of appreciating the true spirit behind it [i.e. to give him a one time relief from the crisis facing him] starts believing that the government will always come forward to waive his debt. So, even if he is in a position to pay back [a good cash flow enabled by higher yield and better price realization from sale], he decides not to.
The proof of pudding is in eating. Following the announcement by Congress President, Rahul Gandhi to waive loans in MP, tens of thousands of farmers have stopped paying back despite being in a position to do.
Second, given the millions of farmers intended to be covered under loan waivers, there is always a possibility that a substantial chunk of them are left out due to sheer administrative lapses. There could also be situations whereby a farmer has already paid back the loan and therefore, has very little residual debt requiring waiver. For instance, in UP, several farmers got cheques for a few rupee [even paise in some cases] as there was negligible outstanding in their accounts.
That apart, there are millions of farmers who had not taken loans from institutions viz. commercial banks/cooperative banks but are indebted having borrowed from ‘informal’ sources [albeit at much higher interest rate]. They won’t get the benefit of loan waiver which is applicable only in respect of loans from institutions.
Third, many farmers [those owning large pieces of land say, 4 hectares and above] who enjoy clout with top brass in banks/political establishments/bureaucracy and manage to get loans albeit at concessional rate viz 7% on-lend to small and marginal farmers at much higher rates thereby making a moolah. On top of this, when a loan waiver scheme comes, they get the benefit of the same even as the hapless poor farmers continue to pay heavily to these rich/borrowers turned moneylenders.
Fourth, there are millions of farm workers/landless laborers whose economic conditions are much worse than even marginal farmers [those with land holding < 1 hectare]. They are heavily indebted having taken loans [mostly from informal sources] at high interest rate to fund their consumption needs such as education, marriage, mandatory social ceremonies etc. Getting no relief from loan waiver which is meant only for agricultural loans, this pricks them.
Clearly, loan waivers by benefiting only a section of the farming community viz. landing owning farmers who have taken loan from lending institutions are inequitable and discriminatory. This is bound to cause bickering and resentment leading to socio-economic tensions. There could not be a more potent case of the actions of the state violating Article 14 of the constitution which entitles every citizen to equality before the law.
Fifth, a scheme such as loan waiver if it becomes recurrent breeds in complacency among all farmers across the board. It deflects their focus away from measures to improve efficiency, adopt better agronomic practices and minimize wastage with a view to increase their income. When, a major portion of funding for crop production is available for free [this is precisely what a perennial commitment to loan waiver tantamount to], why would they attend to these?
This is completely out of sync with Modi’s grand vision to double farmers income by 2022. All the steps taken by the government to increase irrigation, soil health cards [SHCs], neem coated urea, balanced fertilizer use etc will be set to nought if the farmers develop an indifferent/cavalier attitude, courtesy loan waivers. In such a scenario, their income will only decline making them increasingly dependent on sops/state crutches.
Finally, the debt waiver by political dispensations of all hues across states year-after-year will be fiscally catastrophic. This has the potential of crippling growth, spiraling inflation, unsustainable debt and increasing poverty.
The impending disaster can be averted only when all parties pledge to shun this practice. But, in an environment where the public has got used to all sorts of sops and is quick to punish a party which does not promise, this seems next to impossible. There could be hope only if each one of us does introspection to recognize that poll-driven sops are not in our long-term interest.
Can Modi change their mindset?