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Jaitley does well to distance Centre from farm loan waiver, but what of Narendra Modi's UP promise?

What began in Uttar Pradesh is slowly spreading to other agriculture-heavy states in the country — demand for huge farm loan waivers. After Uttar Pradesh chief minister, Yogi Adityanath announced a Rs 30,000 crore farm loan waiver, Maharashtra followed with an even bigger loan waiver, initially estimated to the tune of Rs 35,000 crore. Farmer bodies in others states like Madhya Pradesh, Haryana, Tamil Nadu and Punjab, have raised similar demands. There is a good possibility that the actual size of the farm loan waiver will be much bigger than what is originally estimated in all these states.

For instance, Maharashtra has 1.36 crore farmers with total loans amounting to Rs 1.14 lakh crore loans. No matter how hard the government tries to minimise the damages, Rs 35,000 crore will be too small to appease the miffed farmers. It is not feasible at this stage to work out the combined size of these schemes but this will certainly be much bigger than the Rs 70,000 crore doled out by the Congress-led UPA government in 2008.

Representational image. Reuters

Representational image. Reuters

It is not, therefore, surprising why the Narendra Modi government at the Centre is distancing itself from the farm loan waivers, refusing to share any burden. On Monday, Union finance minister Arun Jaitley refused to be a party of the loan waiver talks saying states which want to go in for farm loan waivers need to generate funds for themselves.

Jaitley is right. After all, why should the Centre take the burden of states' largesse? The central government already has enough burden on its shoulders-sinking state-run banks that cry for recapitalisation, faltering economy that begs much higher public spending, committed pay outs to the government employees and so on.

But, how did this whole chain of farm loan waivers begin in the first place? It was none other than Prime Minister Narendra Modi who promised the loan waiver to farmers in Uttar Pradesh first. In the run up to the Uttar Pradesh election campaign, Modi had said farm loan waiver will be taken up in the first Cabinet meeting once BJP comes to power in the state. The Adityanath government fulfilled this promise, however, it triggered similar demands from farmers in other states and massive, violent agitations across the country which brings us to this question

How can the Centre wash its hands off the loan waivers when it was the prime minister himself who set the ball rolling by bringing farm loan waivers in election agenda?

To start with, promising a loan waiver was a big mistake by Modi for well-known reasons. Such a measure instantly and irrevocably destroys the credit culture of the farmer in an entire geography and even lessens the chances of these farmers for securing future credit with ease. It happened during the 2008 UPA government's regime.  Also, never in the past have state-run banks (which are the obvious targets to roll out populist policies) been compensated on time for waiving loans. Hence, this puts a major burden on balance sheets of banks.

However, along with BJP and the prime minister, the Congress, too, has to share the blame for inculcating the loan waiver culture in India's agricultural sector.

For the Congress too, loan waiver promise has been the biggest poll plank in the run up to the Uttar Pradesh elections. Party vice-president, Rahul Gandhi assured the farmers that the waiver will happen within 10 days after his party comes to power. For a seasoned politician, offering freebies has become the easiest way to pursue the poor man's votes. But, a politician rarely thinks about the deeper damage an announcement like this is likely to cause to the credit culture and state finances. This is the reason why the Reserve Bank of India has repeatedly cautioned against such an exercise.

If one looks at the RBI's credit growth figures, funding shortage has never been an issue for farmers. Every year, under the target set by the Union Budget and also to comply with priority sector lending rules, banks lend heavily to the sector. Despite this the sector continues to be economically stressed. It tells us tat the farmers do not need the money or the freebies. The problem lies somewhere else. May be the solution lies in offering better farm technology, assistance to procure and store farm products and get good value for the farmer for the produce.

States which are forced to implement loan waiver will have heavy financial burden for many years to come. This will also break the backs of state-run banks that have lent huge sums to farmers, mainly on account of vanishing credit culture. It is ironical that the Centre is washing off its hands the crop waiver exercise after initiating the idea in this round as an easy political tool to win votes.

Updated Date: Jun 14, 2017 08:32 AM

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