Uttar Pradesh farm loan waiver: 19 paise writeoff is a cruel joke; govt needs to explain the math

New Delhi: If the government promises waiver of up to a lakh of rupees in farm loans and then all you get is 19 paise, a few rupees or even a princely sum of Rs 100, it does seem perverse justice, whatever be the math. This is precisely what has happened with some farmers who were hopeful of getting their loans waived under the Uttar Pradesh government’s ambitious farm loan waiver scheme, one of the first decisions taken under the Yogi Adityanath government sworn in this summer. The state government’s press statement itself reveals that 4,814 farmers received amounts between Rs 1-100, another 5,553 received amounts up to Rs 500 and 41,690 farmers got anywhere between Rs 1,000-10,000. All this raises a whole lot of questions, why did some farmers receive amounts in mere paise – not even a whole rupee – but let us keep that aside for the moment. Are the disbursed amounts a result of mere clerical error, was the scheme itself poorly drafted or does the Adityanath government have a cogent explanation for this cruel joke on small and marginal farmers? Despite repeated attempts, the state government’s information department and at least two ministers either declined to comment on this issue or were unavailable. [caption id=“attachment_4048315” align=“alignnone” width=“825”] Cartoon by Manjul. [/caption] This piece in New Indian Express quotes a farmer from Etawah saying he got just 19 paise while another got 50 paise under the scheme. Is the scheme covering interest accrued on the loan amount, the entire amount (interest plus principal) or is there another calculation which has lead to farmers getting waivers of just a few paise? These questions assume importance since farm loan waivers are huge political gambits, frowned upon by economists and central bankers but hailed by politicians eager to generate support. UP may have been on the forefront but some other states also lined up such waivers. The Rajasthan govt on Thursday announced Rs 20,000 crore farm loans. UP, Maharashtra and Punjab and Karnataka had earlier announced waivers totaling Rs 85,000 crore. There are already estimates by brokerages that outgo on such populist waiver schemes could more than double before the General Elections in 2019 – which means more states would want to use the farm loan waiver carrot. [caption id=“attachment_3705087” align=“alignleft” width=“380”]  File image of UP chief minister Yogi Adityanath. PTI[/caption] So why is the UP example floundering? The state government’s own explanation of the scheme is this: “The Government of Uttar Pradesh (GoUP) shall provide loan redemption up to Rs 1 lakh to individual small and marginal farmers, whose crop loans were disbursed by lending institutions on or before 31st March 2016. For the purpose of calculating the loan redemption amount, the outstanding amount (including the interest) as on 31st March 2016 would be reduced by the repayments/credits received from the farmer during Financial Year (FY) 2016-17 (after 31st March 2016 and till 31 st March 2017) without taking into account the money withdrawn by the farmer or new sanctions by the lending institutions during FY 2016-17.” From this statement of intent, one can surmise that the scheme is applicable to the entire outstanding on the cutoff date, not just the interest on the loan availed. And this is why the math used to transfer such tiny amounts to the loan accounts of farmers makes little sense. According to the statement quoted earlier, 11,93,224 farmers were found eligible in the first phase of this loan waiver scheme and a total amount of Rs 7,371 crore was transferred to their loan accounts for redemption of their loans. This means the average amount transferred to each of the recipients works out to Rs 61,773.81. But 65,334 such farmers given less than or equal to Rs 10,000 in waiver. Shouldn’t improving farmers’ income also include various other measures – apart from nominal amounts as loan waivers? Analysts at SBI Caps have said in a recent note that on the whole, agricultural income improved in 2016-17 due to increased agricultural output. For the current fiscal, while the sowing trend has weakened marginally, farmers are expected to see better pricing for their produce leading to an overall healthy revenue. They further note that farm loan waivers have gained traction. “It is an unfavourable development from the overall macro perspective as it spoils the credit culture, can be inflationary and puts pressure on the government deficit. However, from rural perspective it alleviates some of the debt concerns in the rural area and frees up the income for consumption spending, albeit with a lag.” Coming back to UP, the state government has itself pointed out in the scheme document that around 70 percent of the state’s population directly or indirectly depends on agriculture and allied activities. In spite of this, the farmers of the state are economically very weak, which is evident from the fact that UP ranks 13th in terms of farmers’ income among 18 major states in India. The loan waiver scheme document further says that average income of farmers in UP is Rs 4,923 per month. This is lower than the national average of Rs 6,426 per month and one-third of the average monthly income of Rs 18,059 of Punjab’s farmer. Also, an average monthly consumption expenditure of Rs 6,230 pushes an average farmer from Uttar Pradesh into a deficit of Rs 1,307 each month. Embarrassed with farmers lampooning it for transferring ridiculous amounts under the loan waiver scheme, the state government is now promising to publish a list of such beneficiaries who got around Rs one lakh under the scheme. That would be small solace to those who were left holding certificates with merely a few paise as the benefit.