Events
& Issues
New Delhi, 26
December 2018
Farm Loan Waiver
REPLACE WITH POLICY MIX
By Dhurjati Mukherjee
Farm distress is
presently a subject of much discussion and debate not just among politicians
but also academicians and planners. This has gained more currency, specially
after the election results in the three Hindi heartland States, where the rural
population voted against the BJP government and there has been protests by
farmers due to their social and economic distress. One cannot deny the fact
that an estimated 3 lakh farmers committed suicide in the last decade or so due
to high cost of farming and low returns apart from crop failures.
Though populist
policies followed by political parties have gone for farm waivers, recently the
former RBI Governor Dr Raghuram Rajan cautioned against such waivers promised
by political parties and instead backed the idea of income transfer as an
option to mitigate distress in agriculture sector. Releasing a report on the
economic agenda, which was put together by 13 Indian economists based in India
and overseas, Rajan observed that it creates enormous problems for the fiscal
stability of States.
The statement comes
at a time when seven States announced farm loan waivers of Rs 1.8 lakh crore
with the newly-elected government in Madhya Pradesh and Chhattisgarh expected
to join the ranks of Uttar Pradesh, Punjab, Rajasthan, Maharashtra, Telengana
and Andhra Pradesh.
“We need deep-rooted
transformation of agriculture, treating it not as a sector that has to be
propped up through repeated sops but as an engine of India’s job creation and
growth. For that, it is imperative that we thoroughly reform agricultural and
land policies. In particular, a key source of agrarian distress in recent years
has been that the terms of trade confronting farmers have turned progressively
more adverse, partly as a result policies to combat food inflation”, the
economists stated in a 14 page note released to the media.
The policy mix for
agriculture ranges from strengthening National Rural Employment Guarantee
Scheme for the landless to improving the crop insurance scheme. Besides the
economists, suggested that the government ensure that farmers receive more of
what has been paid by the consumers by improving access to international
markets and doing away with the ‘switch on, switch off’ policy for exports.
Citing experience of ‘Rythu Bandhu’ scheme in Telengana, the most significant
proposal is to shift to cash subsidy scheme linked to land holding based on
digitising and identifying plots.
Followed by Dr
Rajan’s warning, the Niti Aayog has come up with a slew of measures for the
farm sector because as now the policies help only a fraction of farmers and is
no solution to agrarian distress. According to its paper it suggested the scope
of contract farming, scrapping the Essential Commodities Act and replacing the
minimum support price (MSP) with a minimum reserve price (MRP) for auction of
grain at the mandis (local maekets). The
think tank has emphasised the participation of the private sector in
agricultural development, promote agri entrepreneurs and create a policy
environment that enables income security for farmers.
Though the
suggestions may merit attention, it would have been better if the paper would
have gone into the details of the proposals and what immediate measures the
government intends to take. The need for more private participation in the farm
sector has been a long standing demand but unfortunately this has not materialised
as the returns are not attractive enough. Moreover, the scrapping of the
Agricultural Costs and Prices Commission and replacing it with a tribunal,
which would determine the minimum reserve price has not been well
explained.
A certain section of
economists feel, and quite rightly, that these measures are too theoretical and
do not have much relevance to the real issues at grass-root levels. Most
farmers do not get the MSP due to rampant corruption and are cheated by
government agencies. It is also difficult for them to shift to value-added
crops due to lack of finances. Moreover, at times of high yield, they are
forced to sell vegetables below costs of farming as has happened this year in
case of onions.
Meanwhile, Rajasthan,
Madhya Pradesh and Chhattisgarh, after the new government took over, announced
loan waivers, as promised before the elections. In Rajasthan, Chief Minister
Gehlot announced waivers of farm loans up to Rs 2 lakhs till November, costing
the exchequer Rs 18,000 crore. Earlier in MP, Kamal Nath cleared a proposal for
waiving farm loans up to Rs 2 lakhs, which is expected to benefit 34 lakh
farmers, whose size was pegged around Rs 35, 000 crore. However, such waivers
may not be useful in the long-term because in MP, a study was undertaken which pointed
out that farm related non-performing assets doubled in a little over three
years between 2014-15 and June 2018.
It is indeed
distressing to note that the share of the farm sector in GDP declined from 29
per cent in 1990 to about 17 per cent in 2016 but it remains a major source of
employment. According to OECD data, 85 per cent of operational land holdings
are less than 2 hectares and account for 45 per cent of the total cropped area.
Only 5 per cent of farmers work on land holding larger than 4 hectares, as per
the Agricultural Census 2016.
Productivity lags
other Asian economies such as China, Vietnam and Thailand and average yields
are low compared to other global producers. Wheat and rice yields are nearly 3
times lower than world yields while those for mango, banana, onion or potato
are between 2 and 7 times lower than the highest yields achieved globally, says
OECD.
In such a situation,
the obvious answer is cooperative farming of say three to five small farms and
trying to raise productivity. Added to this, diversification from staple crops
to value added crops and certain vegetables and fruits would help to boost
farmers’ income. It would be ideal if some areas go for contract farming and
entrepreneurs come with capital and technology to reverse the trend of
declining productivity and falling prices. There is need for political parties
through the involvement of panchayats to ensure that either cooperative farming
or contract farming becomes a reality and aids small and marginal farmers.
Another significant
point missing in the Niti Aayog paper is the emphasis on R&D. The Indian
Council of Agricultural Research (ICAR) should reach out to farmers at the
sub-divisional levels through panchayats and, in cooperation with the IITs,
help farmers with innovative and low-cost farming technologies. Strategies
should have evolved for creating infrastructure for watershed development and
integrating rainwater harvesting with irrigation, creation of markets and
storage facilities. Moreover, there should be some stress on organic farming,
not just for those who are interested in exports but also to get higher prices
in the domestic market.
Thus, loan waivers
may not be the right panacea for revival or rejuvenation of the farm sector.
The way farm distress is headed may have a disastrous effect in the near future
and thus the question of agricultural rejuvenation must remain a priority. The
adoption of the right strategy, whether by the BJP or the Congress, is imperative
as it would have a great bearing on their performance in the 2019 elections. An
action plan with specific targets has to be brought out as early as possible. ---
INFA
(Copyright, India
News and Feature Alliance)
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