Give farmers pricing power, not waiver

The Congress-JD(S) government in Karnataka seems to have finally taken a decision to go ahead with the contentious issue of farm loan waivers in the state. The coordination committee of the coalition government has approved a common minimum programme, which includes waiver of farm loans, creation of one crore jobs and allocation of Rs 1.25 lakh crore for irrigation in the next five years. The second and the third proposals are positive and prospective, and formulation and implementation of effective policies can ensure their success in the coming years. But the farm loan waiver proposal is negative and counter-productive and, instead of helping the farmers, would actually hurt them and end up badly hurting the state’s economy. The proposal now being considered is reported to be a Rs 30,000 crore one-time waiver of all farm loans up to Rs 2 lakh borrowed till May 31 this year. This will certainly be at the expense of the funds needed for productive programmes like job creation and irrigation.

It is true that many farmers are in distress. Three consecutive droughts and last year’s erratic rains in parts of the state have hit the farmers and the farm economy. A number of farmers have committed suicide. But the waiver of loans is no remedy for the problems and will not stop the recurring cycle of borrowing and waivers. The distress can be effectively addressed only by improving farming conditions, providing better infrastructure and facilities to farmers like cold storage chains and giving them better access to improved seeds and other services. More importantly, farmers should get the right price for their produce. The present system, which involves the agricultural produce marketing committees (APMC) and middlemen, exploits the farmers. The farm market needs to be liberalised and farmers should be able to sell to whoever they like and at prices they find remunerative.

Loan waivers do not help those farmers who are really needy and in distress. Those who borrow from banks and co-operative institutions, whose debt is to be waived, are relatively well-off farmers. They do not need the waiver as much as the tenants and the small farmers who borrow from private money lenders at usurious rates of interests and fall into debt traps. But the latter are not helped by the waiver scheme. The Siddaramaiah government had waived some loans. There have been other waivers in the past. If they did not help and a new waiver is needed again now, what good is the waiver scheme at all? The state cannot keep writing off loans every few years. The farm loan waiver is a political idea. It is bad economics, worse public finance and wrong personal finance.