HD Kumaraswamy should wipe his tears and ask this: Can his Rs 44,700 cr loan waiver save the lives of Karnataka’s farmers?

Karnataka Chief Minister and JD (S) leader, HD Kumaraswamy, cried on Saturday.  Why did the man, who put up a brave show when teaming up with the Congress party to keep the BJP out of power in the southern state, cry in public?

Kumarasamy justified his tears with a clichéd metaphor from Hindu mythology, likening himself to Lord Shiva who ‘swallowed poison’.

Now, what is this poison that Kumaraswamy, son of former Prime Minister HD Deve Gowda, is referring to? According to a Times of India report, the CM was primarily referring to the farm loan waiver.

After he assumed power, the CM was under tremendous pressure to announce the waiver. After announcing a Rs 34,000 crore loan waiver in the recent state budget, Kumaraswamy faced more pressure to expand the scope of that package. He yielded, and last week agreed to increase the waiver’s size to a staggering Rs 44,700 crore.

Logically, the state government isn’t prepared to spend more than what is budgeted for the waiver; the additional burden will make anyone, let alone Kumaraswamy, weep.

But the bigger question is this: can the loan waiver announced wipe out the tears of Karnataka’s farmers and provide a solution to the agrarian crisis in that state?

To find answers, one needs to look at the loan waiver politics not just in Karnataka but across other states as well. Several states have announced massive farm loan waivers in recent years, including Maharashtra, Punjab and Uttar Pradesh (UP).

HD Kumaraswamy

File image of HD Kumaraswamy. Twitter@hd_kumaraswamy

Have these programmes helped to repair the distressed rural economy? Farm loan waivers might have definitely pushed up rural demand, albeit temporarily, but this is not because of the real increases in rural income and wages, which means a full-fledged rural revival is still some time away, according to a PTI report that quoted experts and cited Nielsen data.

Quoting HDFC Bank’s chief economist Abheek Barua, the report said the recent jump in items such as tractor sales could have at least been driven by farm loan waivers, something similar to what we saw in 2009 when the then government waived farm loans and that boosted tractor sales by 30 percent.

In other words, loan waivers by state-governments have, at best, acted as a band-aid that covers the wound, but fails to cure a deeper rot that persists in India’s farm economy. It has revived rural demand temporarily but has not addressed structural problems. If the band-aid needs to work, these state governments will have to announce loan waivers every year. No government can afford to do that.

The same goes for the recent announcement on the minimum support price (MSP) hike. The central government announced increases but farmers, under the banner of the All India Kisan Sangharsh Coordination Committee (AIKSCC), are now preparing for nationwide agitations calling the increase inadequate and misleading.

Why aren’t farmers happy? The reason they cite is that the Narendra Modi-led government's MSP for kharif crops is based on a formula of A2 + Fl, which is entirely different from their demand of C2 costs + 50 percent. Implementing C2+50 percent will be a fiscal misadventure for the government as it will cost too much, an amount that is beyond the capacity of exchequer.

The problem with loan waivers and MSPs is that they address only the symptoms and fail to cure the illness.  While loan waivers fundamentally distort the credit culture of even honest borrowers and keep the farmer at the mercy of ruling parties for similar schemes, MSPs too have proven to be inadequate to address the sector’s structural problems.

These are easy political tools; the long-term solution lies in investing in technology, floating better procurement methods and developing irrigation projects. There have been repeated warnings from the Reserve Bank of India (RBI), and from prominent economists, regarding loan waivers and governments’ faulty approach or their lack of long-term vision to fix problems that plague the rural economy.

In Karnataka too, Kumaraswamy has taken the easy route. As mentioned above,

Kumaraswamy, the chief minister of a large agrarian state, must wipe his tears and ask himself a simple question: Beyond winning some political points, can his Rs 44,700 crore loan waiver band-aid solution save the lives of Karnataka’s farmers?

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Updated Date: Jul 16, 2018 14:31 PM

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