Politics of farm loan waivers and how it's increasing agricultural distress
Agriculture contributes 15.11 per cent of GDP in India and there has been a considerable decline in the contribution from this sector to the economy. The crux of the problem is the huge dependency on it.
Agriculture is the only sector which accommodates rural workforce in the country. This could be considered as disguised unemployment or underemployment, yet it offers bare minimum living conditions to millions.
It is quite doubtful whether the central or state governments have any proper data regarding the nature of dependency of rural India on agriculture. Also, no political party in the country is willing to offer effective support to the sector.
The Uttar Pradesh government's decision to waive off farm credit attracts much criticism than appreciation. The Reserve Bank of India, NABARD and Union ministry of agriculture have expressed dissatisfaction with the decision taken by the state government.
RBI governor Urjit Patel’s main opposition is that the decision to waive off loans undermines the credit system of the country.
Theoretically, he is right when he says that such waivers affect the income generation of the banking sector. Such decisions do hit the institutional capability of banking systems. The government has to find alternative sources of capital to replace the lending agency's loss. And of course, this is not a long-term solution to rural distress.
Patel's concern needs to be discussed with reference to RBI's own incapability to control surging non-performing assets (NPA) of banks. It is important to ask how NPAs affect the lending system of the country.
The UP government's decision to waive off agriculture loans is not the national level policy of the BJP, neither of any other party. It is a state government decision in response to electoral politics and it helps divert public attention from other issues, such as those of cow vigilantism.
The state government cannot carry forward such populist policies in the years to come. But while the bureaucracy and legislation are against such decisions, the public is all for it. Farmers want such support systems. This is evident in the recent Tamil Nadu farmers' protest in Delhi. The protest march has attracted media attention but been ignored by the government.
It is true that the central government is not duty bound to respond to their concerns. Also, there is currently no political pressure on the central and state government to listen to them. If at all the government gets involved, it would be in the form of charity and not credit support.
This is the reason why the nature of protest broke conventional methods. The farmers are trying to tell the government that they are victims of development policies and increasing rural distress in the country. However, state agencies often consider distress farmers a burden on the public exchequer and attribute their problems to their individual issues.
This is the reason why even farmers’ suicides are getting sidelined in mainstream discourse. The National Crime Records Bureau noted that the major reason behind suicides is mental health problems of farmers rather than rural distress and debt. Recent academic research also speaks the same.
This shows the shift in government and policies towards rural distress and farming. The blame is finally on the farmers themselves!
What the UP government did is part of the ongoing policy towards the agricultural sector. Other state governments were forced to announce such loan waivers before. The government offer does not ensure any additional capital flow to the primary sector. It helps the farmers to not pay huge debt for the time being and for further capital investment they have to opt for additional debt.
This is the most important challenge ahead for them. For further capital, they have no other option but to approach the lending system, and there are difficulties in getting further credit. So the crisis continues.
This is quite evident in the case of Vidharbha region in Maharashtra. Loan waivers could not stop farmers from committing suicide in the region. The problem is still there and has even lost news value.
One-time loan waivers as a political strategy need to be revisited and questioned. Allowing such promises by power-hungry politicians would gradually undermine the capabilities of institutions of lending in the country.
Strengthening lending structure and policies is more important for the country. Famers’ access to institutions should be improved and rural distress should be considered as a development failure.
Otherwise, every political party will promise loan waivers in its manifesto and win on that basis, and later ignore the needs for capital flow into the sector.
Also read: PM Modi must think beyond loan waiver to stop farmer suicides