Loan waivers: no panacea

Mamtha Sharma in
Bengaluru

H D Kumaraswamy When H D Kumaraswamy announced a loan waiver for farmers in K a r n a t a k a immediately on assuming office as chief minister of a JDSCongress coalition government last May , it was clear that he was not aware of the difficulties involved in implementing the scheme.
For, lakhs of farmers who were enthused by his announcement had to wait a fairly long time before the steps to implement the promise could be initiated. There were issues related to identifying the genuine from the fake beneficiaries as also the time consuming process of checking the land records if only to verify their authenticity. No wonder then that even Prime Minister Modi took a dig at the Karnataka government over what he termed was a “ cruel joke” on the farmers.

Raghuram Rajan Politics apart, economists in general argue that loan waivers do not actually help in providing a long term solution to the problems faced by the farmers, in addition to being unfair to the ones who have been steadfastly repaying their loans. The economists, including former RBI governor, Raghuram Rajan , have spoken about the negative impact of such waivers on the banking system as a whole. Importantly, the waivers do not cover the debts that the farmers owe to the village Shylocks.
Equally significant , the loans, invariably, do not reach the farmers or the tenants who toil on the farm but instead the benefits are enjoyed by the landlords or the already rich. Besides, loan waivers do not ease the mounting interests that the farmers accumulate following their inability to clear the principal amounts , in the process making it difficult for them to get fresh advances from banks.

Economists argue that loan waivers do not actually help in providing a long term solution to the problems faced by the farmers. Former RBI governor Raghuram Rajan has also spoken about the negative impact of such waivers on the banking system as a whole.

Kumaraswamy , on his part, had provided about Rs 40,000 crore in his budget last year for the loan waivers of farmers with debts up to Rs 1 lakh. He, of course , did not bargain on the fact that the commercial banks were unlikely to forego their money unless they actually saw something on the ground. In fact, it was embarrassing for him to learn that amid his promise of waiving the loans , a leading private sector bank had filed cases against several defaulting Karnataka farmers. And that too in Kolkata! Other banks were even filing police cases .

Today, however, the situation is much better for Kumaraswamy as his government appears to have managed in giving loan clearance certificates to a few thousand farmers. In this year’s budget ,he hopes to clear the crop loans of all the farmers up to Rs 1 lakh each. Left to him, the chief minister’s supporters maintain , he would have raised the allocation for loan clearance to over Rs 1 lakh crore instead of Rs 40,000 crore for the current financial year. His plan was to waive the loans that the farmers had taken between April 1 2009 and December 31, 2017, particularly from the cooperatives, commercial , scheduled and nationalised banks.

That it was not possible became apparent as the government would have needed to allocate a huge portion of its budget for one single sector alone at the cost of others. On last count Karnataka had released Rs 616 crore to nearly 1 lakh accounts with the last list of beneficiaries being released using the specially created software which helped in fixing the glitches in identifying them. Loan payments have been speeded up after the state government drew flak for the slow pace.

In this endeavour Kumaraswamy has much to thank a young IIT trained engineer cum bureaucrat who developed a software to match the Aadhar card and related details to check and verify the documents of the farmers concerned. To that extent Karnataka can pride itself on at least initiating the much promised loan waiver scheme to ease the burden of its farmers who otherwise find themselves trapped in the cycle ; a promise that the JDS had made in its election manifesto during last year’s assembly elections.

Vote bank politics

Karnataka, is not alone in appeasing the farmers through loan waivers, even though the scheme as such has been criticised ; frowned upon even by the Reserve Bank of India, with other critics terming it as “vote bank politics.”
States like Punjab, Maharashtra and Uttar Pradesh, too, have followed this practice , in keeping with the promises that were made by the ruling parties concerned just before the assembly elections.
Now with the Congress party installing its governments in the three major states of Madhya Pradesh, Rajasthan and Chattisgarh, it too has begun implementing the loan waiver promise that was made in its manifesto before the assembly elections last November. That it would not be an easy exercise is evident from the fact that as per news reports, about Rs 1.47 trillion of agricultural loans are outstanding in these states.

Notwithstanding the politics of appeasement involved in the loan waiver promises, the fact remains that the farmers in the country indeed are a distressed lot .The high cost of inputs, frequent droughts coupled with depleting water resources cause them enough trouble which are heightened by their inability to get the right price for their produce. This was also evident from the recent march to the capital by a section of farmers from Tamil Nadu and the huge protests that those from Maharashtra and Karnataka had unleashed recently to highlight their grievances.

In this context, the developments in O d i s h a and Telengana come as a welcome change as they are providing fresh ideas to the central government and other states which want to help the farmers. The two states have i n t r o d u c e d p i o n e e r i n g schemes to provide direct cash benefits to their farmers, giving a go bye to the loan waivers.

In Telengana’s case it has introduced what is called the “Rythu Bandhu “ programme or the Farmers’ Investment Support Scheme (FISS) which has caught the attention of the country. Under this welfare programme the state government gives Rs 8000 per acre for two crops a year directly to the farmer . The government allocated about Rs 25,000 crore for the scheme , initially ,which has so far benefited 5.8 million farmers in the predominantly agricultural state for which the administration took pains to prepare a detailed report .