Business Line: Economics of loan waiver


Economics of loan waiver*


This refers to Nandini Vijayaraghavan’s well-researched piece “A fiscally prudent solution to farm loan crisis” (The Hindu Business Line, January 4). The bond-route suggestion, which would help carry over a portion of fiscal deficit arising from loan waivers would be music to the ears of Jaitley who is struggling with numbers to balance fiscal deficit. But, as brought out elsewhere in the article, to save farm sector from future crises, loan waiver funds need to be diverted to productive deployment in areas like infrastructure, reduction in input cost, ensuring reasonable return from agriculture, crop insurance and so on. Moreover, so long as government funds are used for unproductive purposes like loan waiver, the impact will get reflected somewhere in the ‘National Balance Sheet’.
 Perhaps, agricultural loan waiver became part of Indian political maneuvering in its present form during late 1980’s resulting in a massive loan waiver through the Agricultural and Rural Debt Relief Scheme,1990 (ARDRS, 1990). The timely caution from RBI about the damage such blanket waivers of loans can cause to the repayment ethics, despite governments shouldering the responsibility to repay, and thereby to the financial system by generating future hopes of similar waivers, fell on deaf ears.

All political parties are party to the ‘Farm Politics’, as none of them has so far raised the issues now highlighted by the Prime Minister openly, like, the benefits of investing ‘waiver funds’ in infrastructure and input support for farming. Another politically sensitive issue is tax on agricultural income. If agricultural income is taxed rationally, the revenue will part-fund infrastructure and insurance in the same sector.
A report in this paper about farmers in the drought-affected Hiware Bazar village in Maharashtra (January 1) shows, a different approach to farm sector is possible. The farmers in this village have stated that they are not interested in the government’s loan waiver, but have resolved to develop their own marketing model this year (2019) to increase profits.
Even as the Centre mulls over how to help farmers and achieve its ambitious target of doubling their income, these farmers have shown the way by multiplying their income by conserving every drop of water and making agriculture a profit-making venture. The average monthly income of the farmer in this village has reportedly increased from 832 in 1991 to 32,000 today.
The same model may not be replicable elsewhere. But the principles and approaches to resources mobilization and project management are universal. As a first step, NITI Ayog could consider arranging to disseminate this success story through media and government channels. Perhaps, Prime Minister may consider including this in his ‘Mann Ki Baat’, if not already done.
M G Warrier, Mumbai
*A slightly edited  version was published in The Hindu Business Line on January 5, 2019

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