Return of farm populism

Reserve Bank of India Deputy Governor SS Mundra and State Bank of India Chairman Arundhati Bhattacharya are justified in expressing their reservations over waiving crop loans due from small and marginal farmers in Uttar Pradesh. If the newly elected UP government is serious about implementing its poll promise, it would, according to an SBI assessment, lead to writing off over ₹27,400 crore, or a third of the outstanding credit to agriculture in the State of over ₹86,000 crore. What is worse is that the BJP government in Maharashtra is under pressure to do the same. Mundra and Bhattacharya have rightly pointed out that loan waivers create a moral hazard by effectively punishing those who repay their loans. However, it must also be remembered that credit restructuring to industry has also entailed generous ‘haircuts’ on the outstanding amount (a euphemism for waiver), often away from the public glare.

The promise of a loan waiver to UP farmers perhaps stems from a political compulsion to appear even-handed towards agriculture and industry. As an electoral ploy, it has been tried by Congress governments in the past. In dealing with the burden of NPAs, both the RBI and the governments concerned should be pragmatic (and considerate), as mooted by RBI Governor Urjit Patel, rather than populist. Hence, an attempt can be made to restructure bad farm loans (particularly in regions where farmers’ suicides have taken place), as in the case of industry, before writing them off. However, in the medium term, crop insurance should emerge as the main vehicle to cope with rural distress. The sudden stress on waivers, which runs contrary to the Pradhan Mantri Fasal Bima Yojana, points to an unwillingness to confront the real issues in agriculture. While Finance Minister Arun Jaitley has said that the Centre will not foot the bill in the case of loan waivers, it is best that the Centre and States veer away from this course. It is not evident that the UPA’s loan waiver scheme of 2008 worked entirely to the advantage of small and marginal farmers, with the CAG later expressing reservations. Similar confusion could arise all over again — between owners, lessees and cultivators.

Recent governments have increasingly focused on ramping up agricultural credit instead of improving the institutions in this regard. These include strengthening rural credit cooperatives, making them more publicly managed rather than government-controlled, so that they emerge as alternatives to informal sources of credit. The SHGs could act as source of credit, but should not be burdened with onerous credit targets, as in the past. Jan Dhan accounts can arrest the trend towards informalisation of credit, provided the emerging banking systems and technologies work to the advantage of the farmers. Finally, agriculture needs better technologies to improve yields and combat the vagaries of rainfall and temperature, and better prices for its produce. The rest will fall into place.

COMMENT NOW