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Farm Loan Waivers

Why are loan waivers preferred?

1. The politicization of the farm crisis has been done by electoral urgencies rather than normative considerations.

2. Farm loan waivers have become a favoured policy choice of governments to address the agrarian distress.

3. The farmers had demanded loan waivers to deal with increasing indebtedness and suitable mechanisms to ensure stable and remunerative prices for their produce.

4. This is due to vulnerability to price movements and the high incidence of falling into a debt trap.

5. This has been further escalated by uncertain weather conditions.

How can farm loan waiver be made effective?

1. The loan waiver policy might work as a short-term solution given the extent of indebtedness of farmers.

2. But loan waivers have not had beneficial impacts.

3. So, there is a need for better policy thinking and targeting of such schemes.

4. This requires proper implementation of carefully designed loan waiver schemes that ensure universal coverage for marginal, small and medium farm-size holders and also covering both formal and informal sources of debt.

5. The Kerala State Farmers’ Debt Relief Commission model could be used to design a comprehensive and inclusive loan waiver scheme.

6. It considers individual applications for restructuring and negotiating debts between farmers and lenders.

7. The advantage of such a commission is that the support provided to farmers is disassociated from the electoral cycles.

Which are the issues with loan waivers?

1. Loan waivers cannot address the problems of rising costs and falling profitability due to declining farm prices, which is the primary reason for the worsening of the agrarian crisis.

2. It disproportionately benefits better-off farmers resulting in moral hazard among eligible farmers with recurring loan waivers and erode the rural credit delivery system.

3. It adversely affects banks that are already dealing with non-performing assets.

4. It also drains the financial resources of the government, which would adversely affect public investments in agriculture.

What are the reasons for farm crisis?

1. Policies focus on inflation targeting due to overt focus on the consumer and not on the producer.

2. Structure of agriculture has been changing with increasing monetization and mechanization that shifts cropping pattern towards cash crops and horticulture.

3. This demands more investment in marketing and storage infrastructure, along with farmers vulnerability to price movements has pushed them into debt trap.

4. Declining prices of agricultural commodities and increase in price volatility have worsened the agrarian distress.

5. Stagnant incomes and deceleration in agricultural output have characterized rural distress.

6. The entire rural economy has been adversely affected by a severe decline in demand, including the non-farm sector.

7. The deceleration in the unorganized sector has led to growing unemployment and a decline in rural demand.

Where lies the solution?

1. Policy measures to raise productivity, reduce input and cultivation costs, offering remunerative prices as per the recommendations of the Swaminathan Commission are needed.

2. Ensuring assured procurement of output, consolidation of landholdings, expanding access to institutional credit, enhancing public investment for infrastructure, instituting effective crop-insurance programmes, and promoting agro-based industries are required.

3. Structural changes are needed to address recurring crisis.

4. More sustained long-term interventions are required for the resolution of the deep-rooted agrarian distress, which has been the result of a long-term crisis.

5. Investments in improving access to better technology, research and extension programmes, and storage and warehousing infrastructure are also needed.

6. Reform of markets to prevent cartelization and collusion and a consistent export–import policy are required.

7. Debt relief might be a proper solution to solve farm distress caused by droughts, rising costs, inadequate crop prices and falling incomes.