Loan waiver, non-productive step

The BJP-led Maharashtra government has backed down from its earlier stand and agreed “in prin­ciple” to a loan waiver for all sections of farmers. Last week, Chief Minister Devendra Fadnavis had offered a conditional waiver, but the offer was spurned. Now, he has agreed to waive all the loans worth over Rs 30,000 crore. The criteria will be fixed by a committee of officials and agriculturists. Unarguably, the trigger for renewed agitation in Maharashtra was a farm loan waiver by the BJP government in Uttar Pradesh. The Maharashtra example will have a cascading effect, raising similar demands in other states. The demand for a nationwide loan waiver will be a logical corollary.

During several rounds of talks on loan waiver, the Union finance ministry had so far refused to pick up the tab. It wanted the states to pay the bounty out of their own resources. However, it agreed to underwrite farm loan waiver worth Rs 36,000 crore in the case of UP, allowing political compulsions to override economic prudence. Maharashtra will now press for a similar favour creating a precedent for other states to cite. Given the precarious condition of state finances and the fact that pressure to implement the Seventh Pay Commission’s award will further weaken their finances, it may ultimately boil down to central support. This would have cost the national exchequer nearly Rs 3 lakh crore, dwarfing the UPA’s initiative in 2008. Fortunately, Union Finance Minister Arun Jaitley has said that the Centre will not extend any further assistance for farm loan waiver which would have otherwise been hugely inflationary while bringing down the economy’s already sluggish growth rate.

From the first ever nationwide loan waiver announced by the Janata Dal government of V P Singh in 1990 to the one announced by the UPA government in 2008, these have been exercises in futility. At best, they give the government temporary respite from farmers’ fury. During the next period of farm stress — and these have become perpetual — the cycle of agitation and loan waivers is repeated again. For the government, the money so waived is money down the drain without addressing any of the root causes of agrarian distress. For the farmers, the short-term gain turns into long-term pain. Their credit history gets distorted and they become defaulters in the eyes of the banks, denying them future loan on account of their inability to payback. As a recent World Bank report shows, loan waiver schemes invariably result in significant decline of fresh loans to the farmers. This is tragic. Rural indebtedness is a symptom of rural distress. Curing a symptom without treating the malaise is an open invitation to disaster.