Table of Contents
RAINING LOAN WAIVERS
Three newly elected Indian state governments have waived up to $8.6 billion in farm loans
BASICS
India is an agriculture based economy
Agriculture: 17.32%
Industry: 29.02%
Services: 53.66%
In terms of workforce Agriculture – 49%
STRESS ON FARM SECTOR
Almost half of the agricultural land in India is not irrigated Majority of the Farms are dependent on monsoon and cannot repay their loans In 2015, the report reveals, over 8,000 farmers and over 4,500 agricultural labourers committed suicide. Since then, there have been several agitations by farmers
NO FRESH DATA ON FARMER SUICIDES
SO WHAT EXACTLY IS A FARM LOAN WAIVER
The Central or the state government take the responsibility of the loans taken by farmers and pay them back to the banks. Two type of farm loan waivers – Complete Waiver – PartialWaiver (Only certain part is paid back by government)
SOME OF THE ISSUES WITH FARM LOAN WAIVERS
Leads to Wilful default of loans and damages the credit culture in the country Leads to NPAs in the bank
WORLD BANK, UN EXPERTS
Debt waiver not a good way of supporting farmers, say World Bank, UN experts Experts said that a “populist” measure such a “blanket debt forgiveness” would prove no good; and that the government should instead find the root cause that contributes to a debt pile-up.
WORLD BANK REPORT ON LOAN WAIVER
WHAT ABOUT SUICIDES?
The suicide data come from the National Crime Records Bureau (NCRB). Despite the Maharashtra government waiving crop loans taken by farmers the number of agriculturists committing suicide in the state continue to rise, according to official data. This trend has been scene in many other states Farm waivers often have little to no impact on suicide rates of the farmers
WHY LOAN WAIVERS CANNOT STOP SUICIDES?
Loan waiver has a limited outreach Loan waivers benefit only those farmers who have availed institutional finance Informal lending is not covered But why farmers borrow from informal sources?
ANALYSIS
There has been two national farm loan waivers—in 1990 and 2008. In 2014, Telangana and Andhra Pradesh announced waivers, Tamil Nadu joined in 2016. Studies have shown that the reduction in bank credit following waivers forces farmers to approach informal sector lenders, which increases indebtedness as such loans are expensive. An RBI study of the loan waiver by Tamil Nadu said it can have a dampening effect on rural credit institutions.
FARM LOAN WAIVERS PUT BURDEN ON GOVERNMENT
- Increase in fiscal deficit
- Crowding out effect – less money supply in the economy
- Rate of interest increases
- Decrease in private sector investment
PROBLEMS DUE TO FARM LOAN WAIVERS
Less money is spent on infrastructural issues
WHAT WE HAVE TO DO
Implementation of proper pricing policy for farmers
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