Did India Really Face With 3.1 Lakh Crore Farmer's Loan Waiver? Will it Really Help?


As the demands for farm loan waivers is rapidly increasing across Haryana, Punjab, Tamil Nadu Madhya Pradesh, Karnataka and Gujarat, after Uttar Pradesh and Maharashtra wrote off loans worth Rs 36,359 crore and Rs 30,000 crore simultaneously, India faces a growing loan waiver of Rs 3.1 lakh or 2.6 percent of its GDP in 2016-17. On this scale of waiver, one could pay for the 2017 rural roads budget 16 times over or 443,000 warehouses or increase India’s irrigation potential as a result of 55 percent more than the success of the last 60 years.

While such waivers could give aid to 32.8 million indebted farmers, an IndiaSpeed analysis of the effect of past farm loan waivers shows that such bailouts are band-aids of doubtful viability and don’t address a deeper profound fascinating the agrarian economy. Over the past nine years to March 2017, the central and state governments waived Rs 88,988 crore in loans to 48.6 million farmers. The countrywide Rs 52,000 crore loan waiver declared by the United Progressive Alliance (UPA) in 2008 occupies the mass of this figure. The major focus of waivers is to battle with suicide by farmers, actually rooted by extensive indebtedness. On the other hand, our analysis shows that this had little or no impact on suicide rates, probably because of 32.5 percent on average, or 79.38 million, small and marginal farmers across India depending on the informal sources of credit.

Indian Farmer

In the meanwhile, loan waivers have led to an increase in the non-performing resources of banks, especially public-sector banks, and are probably going to have an important bearing on the state and national financial deficits. According to a 2015 study on NPAs in priority-sector lending in India’s public and private banks, published in the International Journal of Science and Research (IJSR), In 2013, agricultural non-performing assets (NPAs) represented around 41.8% percent of “priority sector”, which also contains micro and small enterprises, affordable housing and understudy loans-NPAs in public and private bank-ups from 25% in 2009.       For example, Maharashtra’s Rs 30,000 crore farm loan waiver for small and marginal farmers will increase the state’s monetary deficiency to 2.71%, which is three-fourths higher than the budgeted deficit of 1.53% of the gross state domestic product (GSDP) for the current financial year, as per this 2017 report by ratings agency India Ratings and Research (Ind-Ra).

Around 85% of all operational farm holdings in India are less than two hectares in size, as IndiaSpend written about it on June 8, 2017. The owners of these contractual farms find it hard to use modern machinery and are frequently too poor to bear the cost of farm equipment. Physical labor increases costs and size and output further limits access to loans and institutional costs. On an average note, 33% of Indian small and marginal farmers have access to institutional credit. It means close to 10.6 million of 32.6 million small and marginal farmers in the eight states asking loan waivers could profit from debts being written off. According to the 2011 agricultural census and the National Sample Survey Office’s 2013 situation assessment survey of farm households, the latest available data, the other 22.1 million farmers rely on moneylenders and relatives for borrowings.

Indian Farmer

According to the National Crime Records Bureau (NCRB) data, in 2007, before the UPA’s loan waiver for thirty million farmers across states, 16,379 Indian farmers committed suicide. On fourth of these suicides (4,238) were only from Maharashtra. The state government guaranteed an additional waiver of Rs 6208 crore in 2009, the year after the loan-waiver was announced. It led to a drop in farm suicides in India’s wealthiest state by GDP, but in 2010, suicides increased again by 6.2%. By 2015, Maharashtra recorded 4,291 suicides, which was also its highest ever, representing 34% of such deaths across the nation, as per the latest available NCRB data. After India’s first major farm-loan waiver of Rs 10,000 crore in 1990-announced by a Janata Party government driven by then Prime Minister V P Singh, it took nearly nine years for banks to recover, as reported in the Economic and Political Weekly in April 2008.

According to a 2005 study, since the 2008 farm-loan, from Rs 7,149 crore in 2009 to Rs 30,200 crore in 2013. These NPAs influence the credibility of loaning institutions. Shares of banks fell 4% after Maharashtra declared its loan waiver. A 2017 Kotak Institutional Equities report said that with public-sector banks (PSBs) representing for the main share of farm credit – 52 percent in Maharashtra, followed by 32 percent from co-operative banks and 12 percent in private banks, these PSBs are “more vulnerable”. It is a clear sign that loan-waiver alone can’t solve India’s agrarian crisis. The data also show that a more-than-necessary focus on agricultural credit, as other key issues stays unaddressed. Over a decade to 2014-15, as institutional credit in agriculture grew 547%, from Rs 1.25 lakh crore to Rs 8.45 lakh crore, rural road construction, which increases access and encourages agricultural income and gainful employment, grew 10.5%, according to the 2016 research paper.

According to a 2015 IJSR paper, about 7 percent of India’s total grain output, 10% of seeds and between 25% and 40% of fruits and vegetable overall a third of farm harvest spoils, are wasted each year on the silly reasons that there isn’t sufficient storage and supply-chain infrastructure. Irrigation has progressively important in a period of environmental change, which has failed Indian farming. Near about 47.6% of India’s farms are irrigated, as IndiaSpend reported on June 8, 2017, and the decadal development in the net-watered zone was 0.3%, according to the Ministry of Agriculture data. The check the effect of market changes, Chief Economic Advisor Arvind Subramanian suggested enhancing the “procurement capacity” or money available to buy farm produce – of states, lifting export bans, raising stock limits and including “risks and externalities” as enclosing the minimum support prices (MSP) for various produce.


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