Farm loan waiver: Why government should think beyond freebies to help poor farmers

A pandora’s box seems to have opened up with the governments of Uttar Pradesh and Maharashtra deciding to go for loans waiver to farmers. Of course, in the case of Uttar Pradesh, it was promised during the elections by the BJP, but the decision in the other state - also ruled by the BJP - have been literally dictated by the agitating farmers, who, in turn, have got complete support from all the opposition parties. Shiv Sena, a partner in the ruling coalition in Maharashtra, supporting the opposition on this issue is not surprising, given the fact that it is a partner of the BJP only on paper, but its worst enemy in reality.

However, this is not all. Now farmers in Haryana, Rajasthan and Punjab are planning to agitate on similar lines. In fact, the farmers’ agitation for waiving off loans and better remunerative prices is assuming the proportions of what is believed to be a huge anti-BJP front, which all the opposition parties think will be the best weapon to unseat the Narendra Modi-led government even before the general elections in 2019. But in the process they are not realising that they are simply playing with fire, which will burn them too, if not today then tomorrow, even if there is an alternate government led by Rahul Gandhi or Nitish Kumar or anyone else.

Nobody disputes the fact that nearly 70 percent of the population of India is engaged in agricultural and allied activities. Those holding less than one hectare of land constitute 62 percent of the population while the remaining with 1-2 hectares make up for another 19 percent. Then there are the landless farmers. Actually, the truth is even harsher -- most of the farmers dependent on agriculture are often underemployed. This is because full-time farming doesn't happen due to a number of variables.

Farmers have not enough land to cultivate on a big scale with their small, often tiny, holdings; majority of them are still dependent on erratic monsoonal rainfall; crop yield in the country is low in comparison to international levels. The strategy of irrigation is faulty and agricultural development is degrading land resources in the form of alkalinity, salinity and water-logging, thus badly affecting the fertility of the soil.

farmers. Representational image. Reuters

Representational image. Reuters

In a sense, poverty in India has become intrinsically linked with the over-dependence of the majority on agriculture. But then, this linkage is something that has been true of every country, including those that are among the world’s richest and highly industrialised today.

Take for instance, the case of United States of America. In the year 1800, as many as 74 percent of Americans were dependent on agriculture, but today only about 2.5 percent of their population are engaged in agricultural work.

If we apply this fundamental principle to India, then it becomes obvious that we continue to be a poor country essentially because agriculture is still the largest source of employment, with more than half of the country’s population being dependent on agriculture for livelihood. And the irony here is the fact that despite so many people engaged in agriculture and allied activities, the economic contribution of agriculture to the overall GDP (Gross Domestic Product) of the Indian economy has been declining over years; it was 42 percent in 1951, which has come down to only 13.7 percent now.

The universal law is that the lesser the contribution of agriculture to a nation’s GDP, the more advanced it is. But then, if Indians are still poor despite the declining contribution of agriculture to the country’s GDP, it is essentially due to the dependence of half of India’s work force on agriculture. Therefore, the real problem with Indian agriculture is not its negligence, but over-dependence. But Indian politicians do not think so. For them, what matters more is votes and how to buy them. The result is that with each passing year, we hear of more demand to subsidise the farmers and waive their loans.

Here are some hard facts: In India, agricultural income is not taxed. Fertilisers and seeds are given at highly concessional rates to the farmers. So also the diesel supply to them for their water pumps and tractors. Electricity in many states is virtually free to the farmers. The government then determines the minimum prices that one has to buy products from the farmers. In case of natural calamities, such as rains and cyclones and droughts, the government distributes millions of rupees, all in the name of helping the farmers. Banks are under governmental directives to provide loans with absolutely low or no interests to the farmers; but more often than not, the governments, whether at the Centre or in the states, waive such loans.

According to noted economic analyst Mohan Guruswamy, the food subsidy bill has increased from Rs 24,500 crore in 1990-91 to Rs 1.75 lakh crore in 2001-02 and further to Rs 2.31 lakh crore in 2016. In fact, Guruswamy has written on his Facebook wall on the quantum of the ever alarming subsidies: “The total subsidy provided to agricultural consumers by way of fertilisers and free power has quadrupled from Rs 73,000 crore in 1992-93, to Rs 3.04 lakh crores now. The farmers’ loan waivers just this year alone will scale over Rs 1lakh crore. The LPG and fuel subsidies add up another Rs 1lakh crore. Farm subsidies total up to more than Rs 2.5 lakh crore. Air India gets another Rs 50,000 crore to burn. PSU losses without the oil companies amount to over Rs 1lakh crore. Sugar, wheat, rice and oil seeds add to subsidies. Then there is free power and so many other giveaways. Jaya, KCR canteens, Akhilesh laptops at election time. They are now estimated to add up to Rs 16-20 lakh crore annually. The capital expenditure to budget ratio is about 9 percent which means it's less than a quarter of the cumulative subsidies.”

Coming back to the issue of farmers, it needs to be pointed out that most of the subsidies mostly benefit the well-off farmers and do not reach the lower rung farmers. Let me quote a Bloomberg newsitem of December 2014 : Vattikuti Prasad grows rice, bananas and sugar cane on his farm as big as 27 football fields in a part of southeastern India where most farmers own plots the size of just one. He has two homes, including a four-bedroom house he rents out in a nearby town. This year Prasad took out at least Rs 120,000 ($1,940) in cheap farm loans from State Bank of India and said he planned to use them to open a third branch of his pesticide and seed business in the state of Andhra Pradesh. And for the second time since 2008, he won’t be paying the money back: The government has offered to forgive Rs 35,000 crore in agricultural loans…. As many as 80 percent of fellow businessmen in his town of Tanuku, a 400-kilometer (250-mile) drive from Hyderabad toward the Bay of Bengal, have spent their farm loans on all kinds of things, especially buying more land”, Prasad said, with the confidence the money is free. “Why should we repay now?”

The point is that governmental benefits have been cornered by the well-to-do, rich farmers with political connections. The overwhelming majority of the farmers remain poor and indebted to the local money lenders because they do not have enough guarantees to procure loans from the banks. But, and this may sound strange, these really poor farmers do not commit suicides unlike what our politicians point out to from time to time. As this Indian Express story shows (read here) majority of the farmers suicides are linked to bank loans that are typically given against some collaterals such as land. These farmers are relatively well-to-do and would have invested quite a lot in what is called cash-crops that failed for certain reasons.

Of course, it is a fact that farmers in the rich and industrialised countries also get huge subsidies. But the essential difference there and the farmers here in India lies in the productivity. The United States and European countries are way ahead in overall agricultural production. They produce much more than what their residents consume. No wonder then that the world’s top 10 agriculture exporters are the United States, France, Netherlands, Germany, United Kingdom, Canada, Australia, Italy, Belgium and Spain. Each of them are highly industrialised, thus negating the myth that industrial development is the enemy of agricultural development. As a matter of fact, enhancing the agricultural output has nothing to do with the number of farmers. What is important is quality, not quantity. Even China, which has less cultivable land than India, has outstripped India in agriculture, even though the two countries were more or less on par on most parameters 25 years back.

Our politicians have never bothered to go to the depth of the agricultural problem. For them, the solution lies in providing more and more subsidies and free distribution of money. But the real solution, as has been proved in China, is through spending more on agricultural research, applying modern and scientific methods of cultivation, increasing the rate of irrigation, improving the water management style, and shifting emphasis from rice and wheat cultivation towards horticulture, livestock and fisheries. We have also not really encouraged the private sector to invest in agriculture.

Finally, the real problem with the Indian farmers is that there is not enough cultivable land in India to sustain the livelihood of half of the country’s population. The best way of helping the landless, unemployed, underemployed and poverty-stricken farmers is not to keep them captive to the agricultural sector but to empower them in such a way that they have options to choose non-agricultural careers -- something my father realised and has worked for me and my brothers.

The moral of the story, thus, is that if you want to emancipate the farmers from poverty, then help them acquire adequate abilities or skills to look for a vocation outside agriculture. And help those who have got adequate land with new techniques, styles and expanded infrastructures so that agriculture becomes a profitable proposition. Loan-waivers are a dangerous solution as has been lamented by the Reserve Bank of India governor Urjit Patel.

Let me end with a warning by citing what Guruswamy wrote in his Facebook wall. In 1887 Alexander Tyler, a Scottish history professor at the University of Edinburgh, had this to say about the fall of the Athenian Republic some 2,000 years ago: A democracy is always temporary in nature; it simply cannot exist as a permanent form of government. A democracy will continue to exist up until the time that voters discover that they can vote themselves generous gifts from the public treasury. From that moment on, the majority always votes for the candidates who promise the most benefits from the public treasury, with the result that every democracy will finally collapse over loose fiscal policy, (which is) always followed by a dictatorship.

Updated Date: Jun 15, 2017 17:30 PM

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