Farm Loan waiver: Temporary Relief versus Sustainable Solution - 5 Pointers

2017

Manoj Rawat
Head, Agribusiness & Rural Banking Group
RBL Bank, Mumbai, India
mkrawat@gmail.com

The views expressed in this article are purely personal.

Farm Loan waiver :

Temporary Relief in distress V/S Sustainable Solution 5 Pointers

Do we need to re-align our national policies and framework to bringing lasting

improvement in socio-economic condition of our marginalized farmers rather
than doling temporary populist relief measures and poll sops?

7. Agriculture will continue to be vital for well-being of our country

Agriculture will continue to a vital role in Indias economy as long as we have 1.3 billion
people to feed. Over 58 per cent of the rural households depend on agriculture as their
principal means of livelihood. Agriculture contributes 15% of Gross Domestic Product
(GDP). Despite supporting almost 60 percent of Indias total population, the
contribution of agriculture to the GDP has been consistently declining and this tilt is

1 Manoj Rawat | mkrawat@gmail.com

Farm Loan waiver: Temporary Relief versus Sustainable Solution - 5 Pointers
2017

creating a perceptible imbalance. It high time we recognize that an excessive part of the
countrys population is dependent on Agriculture sector, resulting in massive disguised
unemployment and therefore there is need for finding out new farm sector framework to
engage the labor/wage earners outside agriculture and allied agriculture to other
sectors. This shall help in reducing under-employment/disguised unemployment on the
farm and building alternative opportunities for the rural population.

2. Plight of small & marginal farmers is far bigger and will only aggravate
if not addressed sustainably
The harsh reality is farmers especially the small and marginal farmers are struggling to
survive. These small and marginal holdings are more than 85% and these farm holders
are facing decreasing landholdings, high input costs, falling water table, deteriorating
soil quality and insignificant improvement in productivity and yields. Sustainability of
small farms is a growing matter of concern and so is to help these farmers get rightful
price for the produce they grow. While small and marginal farmers are facing a serious
challenge due to lack of economies of scale, the situation is going further aggravate with
every coming year. As per Government estimate by 2030, 91% of total farm holding
would belong to small and marginal farmers of categories of less than 2 hectares. The
real challenges to be addressed therefore is are far more serious and bigger and wide-
spread
3. Credit flow has jumped multiple times but farm incomes and farmers
income security a big concern
While the flow of credit has grown by 10 times in the decade, the outcome and income of
farmers has not grown in the same proportion and there has been really no significant
improvement in farmers on the ground situation and therefore there needs to focus on
unclogging and removing the bottlenecks that are really creating real distress for the
farmers especially the small and marginal one. It clearly points to the fact that credit
burden cannot be only single factor which is responsible for farmers current plight,
rather there are other factors which have deprived the farmers of their rightful status in
economic pyramid of the country. Loan Waiver as merely poll baits and populist
measure that harms the farming community and agriculture sector at large
It is important to note that 80% of agriculture in India depends on credit and therefore
Agriculture Credit is the single most critical input in agriculture. It is a matter of fact
that agriculture credit flow which was at Rs. 86,980 crore in 2003-04 will grow to Rs.
900,000 crore in 2016-17. This will go up further to Rs 10,00,000 crore in next financial
year. However its important the credit policy framework for banks so that every unit of
credit could help farmer generate better livelihood.
4. Loan waivers may not be best way to help the distressed farmers as it is
not in the interest of any stakeholders the Farmers, the Banks and later
on the Government
Given the election season Political parties try to consolidate the farmers as a vote
bank by wooing them on promises like loan waiver, interest free loans, so on and so
forth, which ultimately creates a big challenge for unsuspecting farmers, as this
ultimately results in impairing the agricultural credit channels for them in a longer run.
Placing such promises on manifesto should be discouraged by appropriate

2 Manoj Rawat | mkrawat@gmail.com

Farm Loan waiver: Temporary Relief versus Sustainable Solution - 5 Pointers
2017

constitutional mechanism.The banks are not comfortable with debt waiver schemes as it
vitiates the credit culture in the industry, creates ill will among those who are timely
payers, because debt waiver goes to only those who default the payment and encourages
moral hazard. The states ultimately may end up taking an imprudent decision for
farmers in a longer run, create fiscal deficit, saddle the banks with bad debt, create a
moral hazard to willfully default on debt repayments and ultimately result in impairing
the agricultural credit channels for farmers. The past experience have reportedly shown
that the earlier debt relief schemes resulted in fewer farmers getting access to credit,
which is the exact opposite of what the government had intended to achieve.
5. What could the (best) possible way forward to provide relief to
marginalized farmers and yet create sustainable income security?
1. In case of small and marginal distressed farmers the sops/waivers are to be
extended than such announcements should be part a comprehensive package, including
public and private investment and should be judiciously blended with other incentives,
subsidies and sops which help the farmers create sustainable livelihoods and give a
boost to agriculture sector.
2. These incentives can be purveyed through mechanism of Direct Benefit Transfer
(DBT) to farmers accounts/loan accounts in case of crop failure, natural calamity or
distress or unfortunate incidence. The methodology and mechanism with banks can be
worked account. It will be quick and transparent. In this case Government will be seen
as payee rather than farmers perceiving it as waiver.
3. The incentives should be given for capital formation, boosting agriculture and
creating income security. Following could be possible incentives
i. Develop Irrigation & Micro-Irrigation- Reduce dependence on monsoon
ii. Promotion of new technologies for farmers
iii. Incentive on investment Credit ( capital formation)
iv. Water conservation measures
v. Improved seed kits at lower cost
vi. Measures to improve crop yield and soil productivity
vii. Comprehensive Insurance schemes for crops ( besides notified crops)
viii. Improved Cattle scheme
ix. Installation of Milk collection centres in villages
x. Program on fisheries, poultry and bee keeping
xi. Area specific incentive programs on horticulture, floriculture, and
aquaculture
4. India still does not have a defined drought policy, although the country has started
an anticipatory drought management approach. The Policy makers should take a
serious view of the impact of uncertain rainfall patterns leading to drought or flood. The
spending on Climate change and Drought proofing needs to be increased under a master
plan with targeted approach rather than providing relief only on as an when basis.
5. There is need for announcing that market driven remunerative farm gate price
(doubling the farm income) will be implemented to protect the interest of farmers. The
farmers produce should be collected at farm rather than APMCs. The APMCs act may be
amended suitably. The objective is to create a framework for farmers income security.

3 Manoj Rawat | mkrawat@gmail.com

Farm Loan waiver: Temporary Relief versus Sustainable Solution - 5 Pointers
2017

6. There is need for announcing & creating positive opportunities in nearby semi-
urban centers to encourage positive opportunity led migration rather than distress
migration
7. Credit Flow Policies to agriculture sector needs to be more focused on capital
investment in agriculture rather than just ensuring continuity of agriculture by crop
loans. The multiple studies seem to suggest that the doubling of aggregate credit flows
did not had any sizable impact at the agriculture household level income as also in
creating productive assets. It is important to recognize that the flow of credit for short
term ( crop loan for continuing agriculture) and for long term ( for creating assets and
capital formation) will hold key to help farmers especially small and marginal to create
productive assets that generate sustainable income. The Government, Regulator and
Financial Institutions need to review the Agriculture credit policy framework for banks
and financial institutions.

The banking and financial institutions stand firmly behind the farmers, farming
community and especially the small & marginal farmers, however the approach
of implementing the policies & frameworks to bringing lasting improvement in
socio-economic condition of our marginalized farmers needs an immediate
review. The perception and approach need a paradigm change.

Lasting improvement in lives of marginalized farmers is the key !

The views expressed in this article are purely personal.
Manoj Rawat | India | mkrawat@gmail.com

Manoj Rawat
|

4 Manoj Rawat | mkrawat@gmail.com