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Examining farm loan waivers

The solution lies in better schemes that ensure universal coverage for small, marginal and medium-sized farmers
To do or not to do? According to reports, the Central government is discussing a scheme to waive outstanding farm loans in the aftermath of widespread farmers’ protests between March and December 2018 .
Till now, at least 11 States have announced schemes to waive outstanding farm loans: Madhya Pradesh, Uttar Pradesh, Karnataka, Tamil Nadu, Maharashtra, Chhattisgarh, Punjab, Andhra Pradesh, Telangana, Assam and Rajasthan. The pitch for waivers among States has added to the pressure on the Central government for a nationwide farm loan waiver.

Divided opinion

Economists and bankers are sharply divided on whether farm loan waivers are desirable.
One section of economists and hard-nosed bankers argues that loan waivers represent poor policy for a variety of reasons.

First, loan waivers have “reputational consequences”; that is, they adversely affect the repayment discipline of farmers, leading to a rise in defaults in future.
Second, earlier debt waiver schemes have not led to increases in investment or productivity in agriculture.
Third, after the implementation of debt waiver schemes, a farmer’s access to formal sector lenders declines, leading to a rise in his dependence on informal sector lenders; in other words, waivers lead to the shrinkage of a farmer’s future access to formal sector credit.

These arguments need careful and critical assessment. To begin with, there have only been two nationwide loan waiver programmes in India after Independence: in 1990 and 2008. The accompanying image gives data on agricultural non-performing assets (NPAs) of banks before and after the 2008 waiver, and throws up two conclusions. [1]First, farmers are most disciplined in their repayment behaviour.
In September 2018, agricultural NPAs (about 8%) were far lower than in industry (about 21%).
Furthermore, agricultural NPAs were on a continuous decline between 2001 and 2008. Second, there is no evidence to argue that the 2008 waiver led to a rise in default rates among farmers.
The lowest of all NPAs after 2001 was recorded in March 2009 (2.1%), which was just after the implementation of the 2008 scheme.
The reason was the government’s cleaning up of the account books of banks.
Once this was complete, it was totally expected that NPAs would rise again to settle at a slightly higher level. This was exactly what had happened: agricultural NPAs rose and settled at about 5% by 2011.
For two reasons, the rise of agricultural NPAs, from 2% to 5%, is no evidence for indiscipline in farmer repayment behaviour.
One, NPAs in agriculture remained stable at around 4 to 5% between 2011 and 2015.
This was despite the fact that agricultural growth averaged just 1.5% between 2011 and 2015.
Two, D. Subbarao, the former Reserve Bank of India Governor, had pointed out in a 2012 speech that the rise in agricultural NPAs between 2009 and 2011 was due to the “general economic slowdown” after 2009 and the introduction of new norms in the “system-wide identification of NPAs”.

Agricultural NPAs began to rise again after 2015.

There is enough evidence to suggest that this rise was not the result of any moral hazard; it was real, policyinduced and a direct consequence of acute agrarian distress that spread across rural India after 2015.
In particular, the demonetisation of November 2016 aggravated already brewing agrarian distress by sucking cash out of the rural areas, crashing output prices and disrupting supply chains.
The second argument — that loan waivers do not promote investment or raise productivity — is a bit absurd because nowhere has investment or productivity figured as the official objectives of these schemes.
The third argument — that loan waivers shrink access to formal credit sector for farmers — is only partly true.
But the culprits here are banks and not farmers.
After every waiver, banks become conservative in issuing fresh loans to beneficiaries, as they are perceived to be less creditworthy.
For instance, a Comptroller and Auditor General (CAG) report on the waiver in 2008 found that 34.3% of the beneficiaries were not issued debt relief certificates after the waiver, which meant that they could not avail of a fresh loan the following year.
As a result, the scheme’s objective of expanding the issue of fresh loans to farmers was not fully achieved. But to cite such opportunistic actions of banks to deny fresh credit to farmers would be perverse policy.
For every economic enterprise, it is only natural that when the bottom-line shrinks, a reduction of debt burden becomes inevitable.
This is applicable for both (non-agricultural) firms and farms. Firms have always received debt waivers, though they are tactfully termed as “loan restructuring” or “onetime settlements”.
Just as for firms, farms also need a reduction of debt burden, followed by fresh infusion of credit, when their economic cycle is on a downturn.
The demand for loan waivers in India is absolutely logical when viewed from such a standpoint. ▪On the other hand, to consider loan waivers as a panacea for the agrarian distress would also be wrong.
To begin with, access to India’s rural banks is skewed in favour of large farmers.
While public banks actively service the credit needs of large farmers, a majority of small and marginal farmers are not proportionately included.
The latter are forced to rely on informal sources, particularly moneylenders, for much of their credit needs.
As a result, the benefits of loan waivers accrue disproportionately to large farmers while only marginally benefiting the small and marginal farmers.

The Kerala blueprint

But is this a good reason to disallow a loan waiver scheme, as the Prime Minister suggested in a recent interview?
No. The solution lies in carefully designing waiver schemes that ensure universal coverage for small, marginal and medium-sized farmers while covering both the formal and informal sources of debt.
The Kerala Farmers’ Debt Relief Commission Act, 2006 is an excellent model in this regard. This scheme defines debt as “any sum borrowed by a farmer from the creditor”, with the creditor defined as “any person engaged in money lending, whether under a licence or not”. The commission’s mandate included the right “to fix, in the case of creditors other than institutional creditors, a fair rate of interest and an appropriate level of debt, to be payable…” That is, the commission could waive, reschedule or reduce any debt on a needbasis after a detailed hearing of both the parties. Legislations such as Kerala’s are blueprints to design comprehensive, inclusive and lessleaky loan waiver schemes in other States.
Finally, while loan waiver schemes are like a band-aid on a wound, it is the larger agrarian distress that demands urgent policy attention.
Unless there are steps ‘to raise productivity, reduce costs of cultivation by:

Providing quality inputs at subsidised rates,
Provide remunerative prices following the recommendations of the swaminathan commission,
Ensure assured procurement of output,
Expand access to institutional credit,
Enhance public investment for infrastructural development,
Institute effective crop insurance systems and
Establish affordable scientific storage facilities and agroprocessing industries for value addition’,

Farmers will continue to be bonded to low income equilibrium and repeated debt traps.

A failed coup in Venezuela

The country was once the heartbeat of leftist assertion. But with change in the Americas, matters are now complex
The fulcrum of geopolitical tension sits on Caracas, the capital of Venezuela. An attempted coup on January 23 has failed.
The U.S. decided to recognise a member of the Opposition, Juan Guaidó, as the President of Venezuela.
U.S. officials called upon the military to rise up against the government of President Nicolás Maduro.
This was against the charters of the United Nations and of the Organisation of American States (OAS). None of that mattered. The drumbeats sounded from Washington to Caracas. There was a minor drum playing from many Latin American capitals, those whose governments had joined the Lima Group — set up in Peru in 2017 to overthrow the government of Venezuela.
There is little respite for the country, where tension sits heavily from one end to another.
Thus far, the government of Mr. Maduro remains in power, and the military has pledged its fealty to the re-elected president.
It is unlikely that the Venezuelan Opposition — controlled by the old oligarchy — will be able to engineer a coup from within the country. It tried such a political manoeuvre in 2002, which failed. This time it has failed again.
Venezuela’s Foreign Minister Jorge Arreaza, 45, has been understandably busy on the day after the attempted coup. The U.S. tried to isolate the Maduro government.
The OAS met in Washington DC, where the U.S. government tried to get it to unanimously vote against Mr. Maduro. Even that meeting could not go as scripted. A veteran activist from Code Pink, Medea Benjamin, sneaked into the room and chanted slogans against the attempted coup. Many Latin American states, despite intense pressure from the U.S. government, either voted against the OAS motion or abstained. Mr. Arreaza watched these developments and more.
When I asked him about the coup, he went back to 2017, the last time that the oligarchy tried to wrest control of the government from the socialists.
The socialists, led by Hugo Chávez, came to power in 1999. After the U.S. attempted to overthrow Chávez and the socialists in 2002, things calmed down.
Oil prices rose and the U.S. was distracted by events in Iraq and Afghanistan.
For a decade, Venezuela was able to lead a regional process of integration on an anti-imperialist foundation. But, when Chávez died in 2013, the experiment began to unravel.
Oil prices fell dramatically, and the U.S. had already turned its attention to Latin America.
A coup in 2009 overthrew the democratically elected government of Honduras. The gunsights turned toward Venezuela. The oligarchy, backed fully by the U.S., attempted to foment trouble in 2017.
Mr. Arreaza recalled one man, Orlando Figuera, 21, who was going through an Opposition stronghold in May 2017. “He was accused of being a government supporter and brutally beaten by masked protesters who then soaked him in gasoline and set him on fire,” Mr. Arreaza told me.
He brought up this story to offer an illustration of the character of the Opposition. Mr. Arreaza called this a ‘violent fascist movement’. He wanted to make it clear that the coup attempt was a part of that movement — one that is less interested in democracy and more interested in power and wealth.

Steeped in trouble

Venezuela is in trouble. No one doubts that. Oil prices have fallen to half of what they were at the highpoint of Chávez’s government.
Since the treasury of Venezuela is almost entirely replenished by the incomes from oil sales, the collapse of oil prices means the collapse of Venezuela’s public finances.
Unable to borrow easily, the country faces serious economic difficulties. Sanctions by the U.S. and the seizure of refining sites in the Caribbean put the country into a situation of great crisis.
No wonder that people are leaving the country, fleeing their homeland as it is suffocated for political purposes by the U.S. and its Latin American allies in the Lima Group.
Colombia’s Iván Duque and Brazil’s Jair Bolsonaro are both right-wing politicians who control the governments of Venezuela’s neighbours.
They have committed themselves to the overthrow of the Venezuelan government.
Mr. Arreaza and others in Venezuela told me that Mr. Duque, Mr. Bolsonaro and U.S. President Donald Trump have overplayed their hands.
After the attempted overthrow in 2017, the Venezuelan government tried to deepen public participation by the formation of a Constituent Assembly.
It is true that the oligarchy hated this idea and that the western press amplified its views about this being anti-democratic. But, as many Venezuelans say, the Constituent Assembly and the many elections for candidates and referendums that came before 2017 have sharpened their political consciousness. It will be hard to befuddle them with talk of dictatorship.
The isolation of Venezuela is remarkable. Not long ago, the country was the heartbeat of the leftist assertion in the hemisphere.
Now, with the emergence of right-of-centre governments in Latin America and with an explosive energy for regime change in Washington, matters are more complex.
Mr. Arreaza said that Mr. Maduro had invited the UN High Commissioner for Human Rights, Michelle Bachelet, to visit Venezuela. She has not yet come. Mr. Maduro, he said, wanted the UN to host a dialogue with the Opposition to restore some balance to the politics in the country. No such assistance has been provided. A hand is outstretched from Caracas, Mr. Arreaza said. It is waiting for someone to take hold of it.

India, South Africa seal partnership deal

India and South Africa on Friday agreed on a three-year strategic partnership agreement to boost relations.
The agreement, signed during the visit of President Cyril Ramaphosa, will cover defence and security, blue economy cooperation and sustainable development. Working together
“Our countries have compatible world views. We have strong partnership in platforms such as the BRICS, the G-20, the Indian Ocean Region Association and the IBSA Dialogue Forum. We can work together for the reform of the UN Security Council,” he said.
India also invited South Africa to join the International Solar Alliance (ISA) and congratulated it on securing the non-permanent membership of the UN Security Council for 2019-20.
A joint statement acknowledged the growing interaction between the Navies of the two countries, and the Indian leader welcomed the South African participation in the India-Africa Field Training Exercise next March.