Indian agriculture is often compared to the act of gambling in the monsoon. With the prevailing drought conditions and falling agricultural outputs in certain areas has fuelled the farmer suicides throughout the country. However, the loan waiver scheme provides relief for many families thereby encouraging them to invest in the next crop. But these benefits don’t offer long term economic gain for farmers. Many economic experts feel that the money waived could be used for investing in infrastructure projects which help to eliminate middlemen and help them to reap maximum benefits of their products.
In 1990, first ever nation wide farm loan waiver was announced and it cost around Rs 10,000 crore. In 2008, Rs 52,000 crore was released by the Indian government as part of the Agricultural Debt Waiver and Debt Relief Scheme (ADWDRS) which was mainly done to remove the financial indebtedness of the farmers. But it was done before the 2009 general election. In 2014, the Andhra Pradesh government announced a farm loan waiver of Rs 40,000 crore and Rs 20,000 crore farm loan waiver was announced in Telangana region. In 2017, Uttar Pradesh announced a farm loan waiver of Rs 36,000 crore. With state government’s move, Maharashtra followed the scheme with a Rs 35,000 crore waiver
According to a report, the loan waiver scheme (1990) proved a costly affair for the banks and economy. It was stated after the years after the waiver witnessed a decline in the recovery rates from financial institutions, since it installed belief among farmers believed that they could default with freedom, leading to defaults of such a high scale that it took the banks several years to recover from its impact. In 2008, the CAG audit revealed lapses and errors. It included fake claims, an inclusion of ineligible beneficiaries, huge reimbursement from a lending institution without proper verification. Many occasions, the farmers entitled to receive the benefits were not included in the list of beneficiaries by the lending institutions. Many farmers tend to use the loans for non-agricultural purposes. Besides, loan application receipts or acknowledgements from farmers weren’t properly maintained. Lending institutions like banks were responsible for implementing the scheme and also monitoring of their own work – which is a clear case of conflict of interest. No nodal agencies where appointed for the monitoring the work. Debt waiver/relief certificates were not issued in many cases for eligible beneficiaries.
In 2014, when another loan waiver of a large magnitude called “Runa Mafi”, in 2014 in Andhra Pradesh and the newly formed state of Telangana. This announcement invited several warnings and criticism from the Reserve Bank of India and the several financial experts. While it cost Rs.40,000 crore in Andhra Pradesh, it is expected to cost Rs. 20,000 crore in Telangana was aimed at helping farmers, who suffered in the cyclone Phailin, that severely damaged crops, the complete details of the waiver schemes in the two states are not available. Besides, there isn’t any clarity about the eligibility conditions , extent of crop loss due to the natural calamity. However, neither loan waiver curbed the rising farmer suicides in both the states. The National Crime Records Bureau (NCRB) data shows that while 160 farmers were reported to commit suicide in 2014 in Andhra Pradesh, the number went up to 516 in 2015. Similarly, in Telangana, farmer suicides recorded an increase of 50% in 2015 compared to 2014.
In India, agriculture is primarily dependent on monsoon rains. Since most of the farmers aren’t rich, they invest heavily on crops by taking loans. A good shower brings good yields and repayment of the loan. If there isn’t any rains or insufficient market demand, farmers are unable to pay the loan amount or interest. When there is a continuous monsoon failure, farmers are trapped, with no other option, the farmer are forced to commit suicides. So, farm loans waiver is a good step towards curbing the crisis. Besides, many farmers are force to flee from agriculture to find better career elsewhere, which could lead drop in agricultural yields. So in order to avoid such situations, farm loan waiver acts as a good initiative to attract and retain the farmers. Finally, most of the farmers borrow money from moneylenders who charge exorbitant interest rates and get trapped in a very problematic cycle of debt trap. Farm loan schemes and waivers will divert these farmers to borrow money from banks.
Loan waiver schemes disturb loan and credit discipline for the any financial system. Though waivers can be an attractive tool for retaining farmer’s interest in agriculture and avoid fatal incidences, it could lead willful defaults among the farmers. If farm loan waivers are done more than twice, farmers will start to wait for the next loan waiver scheme, which is bad for the economy and agriculture. Besides, taxpayers are at a loss, because loans will be waived only with hard earned money of taxpayers. Rich farmers could take advantage of the situations and push to take loans even if there is no need, in the hope of the next loan waiver scheme. This will impact the poor farmers who are genuinely in need of loans for crops.
Loan waiver is not a permanent solution for agriculture until the fundamental problems are solved. Though it is instant temporary relief from debt preventing suicides, it largely failed on many occasions to contribute to farmers’ welfare in the long term. Besides, there is always a question that to what extent this relief measure can help bring farmers out of indebtedness and suffering always remains a question. Since waivers in India are filled with lack of accountability and lack of proper monitoring reduces the effectiveness of the loan waivers. This coupled with the fact that not all the debt is formal, reduces their effectiveness even more. Since most of the working population of India is dependent on agriculture, loan waiver cannot be avoided. But a proper system of accountability and transparency of waiver will alone ensure the effective working of waiver scheme.