Economic Highlights

New Delhi, 10 April, 2017

UP’s Farm Loan Waiver

DOUBLE-EDGED POLITICAL SWORD

By Shivaji Sarkar

Indian farmers are in distress. Uttar Pradesh Chief Minister Yogi Adityanath’s Rs 36,359 crore farm loan waiver is the beginning of a new thought process. It can neither be dismissed as a mere scoring of political point nor bad economics as many bankers and critics are saying. It is the beginning of a new debate to put the farm sector at the centre of the new Indian economy. The loan waiver is likely to cause a rethink on the World Bank-IMF slur on farm subsidy.

The so-called 1991 “economic reform” and the 1995 WTO rules of the Agreement on Agriculture targeted ending farm subsidies. It caused enormous misery for the farm sector and abated innumerable suicides. The National Crime Records Bureau (NCRB) says 256,913 farmers committed suicide between 1995 and 2011.

Yogi’s and the BJP’s UP election “Sankalp Patra” (manifesto) would possibly reorient the economy and the bad word ‘subsidy’ has to be integrated into the economic theory for the growth of the farm sector, rural sector, elimination of poverty and what is often touted as “inclusive growth”.

The distress of the rural and farm sector is not restricted to UP alone. It is obvious from Maharashtra Chief Minister Devendra Fadnavis’s statement that he is studying the UP model to waive off Rs 30,000 crore loans of the farmers in his State. Even the new Congress government in Punjab is trying to emulate the UP model. Congress Vice President Rahul Gandhi made a remarkable statement. He tweeted: “A partial relief for UP farmers but a step in the right direction. Congress has always supported loan waivers for farmers in distress.” Does that show a political consensus? Is it repentance for 1991 Manmohanomics?

The recent agitation by Tamil Nadu farmers only stresses that distress is widespread. In an order on April 4, the day Yogi announced his waiver, the Madras High Court has directed the TN government to expand its farm loan waiver scheme to include farmers who own more than five acres. Andhra, Telangana and other States may follow suit.

At the human level, the non-sustainability of the current agricultural system was symbolised in the suicide by Lee Kyung Hae, a Korean farmer, who took his life at the barricades of the peoples protest against the fifth ministerial meeting at WTO headquarters in Geneva on September 10, 2003. As he stabbed himself, he carried a banner stating “WTO kills farmers.” Lee’s suicide was symbolic of the suicides of thousands of farmers.

UP’s decision would give relief to 94 lakh farmers owing up to Rs 1 lakh each to banks. It would also benefit seven lakh farmers who had defaulted in repaying. This amounts to Rs 5630 crore. Many of these farmers were being harassed by the banks. There are about 2.15 crore small farmers with holdings of less than two hectares in the State, according to UP Minister Siddharth Nath Singh.

As much as 67 per cent of India's farmland is held by the marginal farmers with holdings below one hectare, against less than 1 per cent in large holdings of 10 hectares and above, the latest Agriculture Census shows. The average size of the holding has been estimated as 1.15 hectare. There is a steady decline in trend in size of these holdings denotes various Agriculture Censuses since 1970-71.

There is a financial fall-out. The waiver is to be funded by the State government without a direct central aid. The loan waiver increases the debt to GDP ratio for the UP by nearly 3 percentage points, taking it to about 6 per cent of the State GDP. Officially, UP is stated to be bankrupt though its revenue is around Rs 3.40 lakh crore. Would that lead to an undesirable higher taxation, is the big question?

This is likely to happen to many States which are reeling from successive droughts and similar loan waivers will lead to State fiscal deficits going out of whack. The overall fiscal deficit of the Centre plus States may increase to about Rs 3 lakh crore. The UP government says that it might launch a farm waiver bond for such refinancing. The bonds, however, need guarantee and the Centre may ultimately have to be the guarantor.

At the same time, the banks apprehend that such waivers might see a spurt in their NPAs as even those who have been making regular repayments would stop paying their dues hoping for another waiver. In UP, banks have an exposure of Rs 86,241 crore to small farmers with an average loan of Rs 1.34 lakh each. The exercise also entails enormous clerical job and in all probability may add to the cost of the banks.

So despite previous history of loan-waivers by many governments in the past, even at the Centre, this should not become the pattern. The nation has to start rethinking. From the point of view of farmers, they are the worst sufferers. Farm input costs have gone up but not the prices. It is a double-edged political sword. If prices of crops are increased it shall have a cascading effect on the economy. As costs rises, credit dries up. Farm debts goes out of control. Finally, it leads to political upheaval.

It goes without saying that the Narendra Modi government wants a farm-centric economy. The NITI Ayog says till 2022, the promised rise in income of farmers may not happen. But it cannot be delayed too. Modi has thus to initiate a discussion on looking at farm-economy in a new manner. Should loans be replaced by some other mechanism? Should that be called subsidy or subsistence? The direct benefit transfer (DBT) has an administrative cost. Subsidies despite problems benefit many others. It is a complex issue and needs thorough discussion.

Indian farmers, particularly those who are into cash crops, have complicated problems. The corporate and MNC ingress into farm sector has aggravated it. A long-term solution to the farmers’ financing and marketing is needed. Across the political spectrum this is the consensus. Modi has this advantage. If he can initiate a process of discussion in Parliament and in the society, a possible path may be found out.

Undoubtedly, the farmers need support and the society has to evolve a sustainable method. It should keep prices and wages in check and also spur economic growth. Benevolent farm policy is accepted as the best way to spur demand and industrial growth. Uttar Pradesh has made a beginning. India has to make the move to turn the golden leaf, make or break policies, churn the world and yes, WTO.—INFA

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