Farm loan waiver, populist, myopic

The Siddaramaiah government’s decision to waive crop loans up to Rs 50,000 availed by farmers from agricultural co-operative societies is an unwise and counter-productive move. It is bad for the fiscal health of the state and is not in the interests of even the farmers in the long run. Farmers in the state, as those elsewhere in the country, have suffered distress for various reasons like drought, failure of crops, unremunerative prices of farm produce and marketing problems. The difficulties are aggravated by the rising costs of living and increased farm expenditure. But the remedy is not to write off loans, which means giving legitimacy to disowning financial obligations. Uttar Pradesh started the trend of loan waivers. Maharashtra and Punjab followed, and now Karnataka has joined the bandwagon. The waiver amounts have varied but they impose major financial burdens on governments. The impact in Karnataka is about Rs 8,165 crore.

The seeming relief given to the farmer is no relief at all because the loan waiver does not address the real problems that plague agriculture. The RBI only recently warned states against waivers which “impact credit discipline and vitiate credit culture.” Borrowers will expect future loans also to be waived and lenders will be discouraged. The burden will actually be shifted from the borrowers to the tax payers. It will affect the fiscal consolidation of states which have to deal with other challenges like the implementation of pay commission recommendations and the GST system. The states are even otherwise in poor fiscal health. Karnataka may have to slash budgetary allocations to meet the cost of its waiver. This will affect all citizens, including the farmers. States cannot expect to get any financial support from the Centre on the matter as Union Finance Minister Arun Jaitley has already ruled it out.

Lack of irrigation facilities, over-dependence on nature, infrastructural deficit, wrong and faulty practices, small and unviable holdings, dependence of too many people on farming and inadequate insurance facilities are serious handicaps of the sector. Most of the problems
are structural. Cold storage and marketing facilities are poor and inefficient and farmers are exploited by middlemen. Support prices and import policies do not always help farmers. Indian farming is among the least productive in the world. Farmers will benefit only if these problems are tackled. A waiver is an easy way out and politicians, who cannot see beyond the next elections, are tempted to go in for that. The Karnataka decision is a populist mea­sure with an eye on the elections which are not far away. It may benefit politicians but not the farmers and the state.

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