Madhya Pradesh farm loan waiver: Experts, social researchers sceptical of move, stress on need for better markets, financial support

Bhopal: Arjun Patidar is a traditional farmer in Madhya Pradesh who has been tilling his land since 1999. He will soon be debt-free, thanks to the new Congress state government’s farm loan waiver announcement.

Yet, Patidar is against the policy.

It will lead to a bad trend, he says, explaining why. “Such loan waivers are likely to change the mentality of farmers. Farm loan is a cycle and almost 90 percent of farmers pay off the debt every year and then take a new loan. But now, they may just skip the loan installment and wait for elections and the resulting waivers,” he points out.

Many other educated and informed agriculturists in the state agree with Patidar’s theory, which is also supported by NGOs, agri-startups and experts.

Madhya Pradesh recently became the first Congress state to dole out this largesse. Within hours of assuming the post, Chief Minister Kamal Nath declared a waiver of short-term farm loans of up to Rs 2 lakh taken before 31 March, 2018, from nationalised and co-operative banks.

The other states where Congress won in the recently-held Assembly elections, Chhattisgarh and Rajasthan, quickly followed suit, and the announcement was subsequently taken up by states ruled by other parties as well.

 Madhya Pradesh farm loan waiver: Experts, social researchers sceptical of move, stress on need for better markets, financial support

Sachin Kumar Jain, a social researcher, termed the loan waiver 'good politics but bad for the economy. Image: Manish Mishra/101Reporters

But is this what Madhya Pradesh really needs?

Sachin Kumar Jain, a social researcher and trainer associated with Vikas Samvad Human Development Resource Organisation, calls the loan waiver “good politics but bad for the economy”.

He believes that unless the government has taken the step by keeping a larger policy in mind, the move is going to affect the state’s economy and development planning badly.

Madhya Pradesh has consistently posted record agricultural growth in the last few years, though average total earnings of farm households in the state continue to lag. The loan waiver is set to burden the exchequer by Rs 50,000 crore and put a strain on the state’s finances.

Says Jain, “The government could have opted for a direct cash transfer scheme to ensure a minimum income to farmers, instead of waiving off loans. We should focus on freedom from the burden of loans, rather than just waiving the debt.”

Studies in Madhya Pradesh have noted that incomes of small farmers have not seen a significant rise, and that more than half of the loan burden comes from debts that are run up via informal channels.

Agriculturists speak

A new breed of “gentlemen farmers” in Madhya Pradesh, who have quit salaried jobs to go back to their roots, discuss the possible solutions.

Parv Kapoor, a 26-year-old graduate in biotechnology from Manipal University, took up farming in 2015 soon after completing his graduation. Now he owns 40 acres in Shahpura village near Bhopal.

Kapoor insists that “funds should be utilised in knowledge-based agriculture”.

“Fortunately, I come from a strong business background and can bear risks, but the common farmers do not have such a buffer,” he explains.

Talking about innovations in farming, he says, “I used to visit others' farms to learn about innovative technology and took the help of traditional farmers to implement the practices. Farming is challenging, as one cannot be sure of the amount and rate of produce. In such an environment, a farm loan waiver is not the solution, as farmers may fall into the debt trap again."

Kapoor stressed on areas which should be the focus of the government. “I see that farmers in my team have benefited from the waiver, but it is not going to help in the long run. The government could have pumped this money into creating knowledge-based agriculture,” he adds.

He explained how farmers have no control over their investment and the failure of insurance schemes. “I had cultivated urad in 2017 on 15 acres of land with an investment of Rs 2.5 lakh. But the crop failed. I got the insurance claim in 2018 after a year’s wait. There are many such government schemes but the funds can be better spent in creating awareness about innovative and organic farming,” Kapoor points out, suggesting that the government should improve mechanisms to provide subsidy on farm equipment than give loan sops, and form a body to regulate the minimum support price (MSP) in the private market.

Parv Kapoor. Manish Mishra/101Reporters

Parv Kapoor says the farm loan waiver will not help in the long run. Manish Mishra/101Reporters

But for many, like researcher Jain, even MSP is not the solution. “Only 10 percent of farmers in the state sell their produce at government-run mandis (markets),” he says.

Could the money have been better used?

For Prateek Sharma, a former banker with Kotak Mahindra Bank who now runs the startup Green and Grains in Dhaba Khurd village 100 kilometres away from Bhopal, a digital marketplace and production control are the solutions to farming problems.

Sharma, despite belonging to a family of farmers, had to face unexpected problems after entering the sector – mainly lack of funding and market interest.

Like the others, he too says farm loan waivers are of no help as many farmers have taken Kisan Credit Card loans from private banks. “What is needed is a mechanism to calculate the demand of agro-products before farmers start with cultivation, as they are usually clueless about demand and have to often slash prices of their produce due to overproduction,” he explains.

Instead of wasting money on loan waivers, Sharma says, the government can allot funds to create a digital marketplace. The money can be further used for procurement of farm produce for the next few years and then to store, market and sell it to processing units, and even to export. “The funds could have been used to set up basic infrastructure such as food processing units, cold storage and warehouses in every district of Madhya Pradesh,” Sharma adds.

On the financial burden of the waiver on the state, Sharma pointed to the assessment of the State Level Bankers’ Committee. “Around Rs 50,000 crore is the amount to be waived off. Banks are happy as they will be relieved from the risk of bad debts, but it will affect the economy in a bad way,” he says.

Swapnil Tripathi, an entrepreneur operating the agri-startup Lok Kalyan which works in Madhya Pradesh's tribal areas to curb migration, echoed Sharma, asking the government to invest in creating a platform for farm produce – something that his startup is doing on a small scale with impressive results.

“The artisans are repaying the small loans they take in self-help groups and are multiplying their profits too. The government should support this model on a large scale,” Tripathi says.

The loan waiver, if it costs the Madhya Pradesh government Rs 50,000 crore, is expected to compromise spending in other areas, hit urban development projects and affect job opportunities.

According to government data, Madhya Pradesh’s agriculture growth rose from 3.7 percent in 2014-15 to 20.4 percent in 2016-17. However, the services sector witnessed a decline from 12.5 percent in 2015-16 to 8.8 percent in 2016-17.

Congress thinks otherwise

When asked about the financial burden on the state exchequer due to the farm loan waiver, Congress spokesperson Shobha Oza says, "Farmers ensure food security for us, so they should get their right. A loan waiver is their right and the need of the hour. Rather than spending crores on advertisements and wasting money on schemes like the Misabandi pension, we will cut the unnecessary expenditure of the government and ensure that the economy of Madhya Pradesh will not suffer."

Other party leaders think that the chief minister is capable of handling the situation and will make sure to bring in more revenue to offset the extra burden.

Congress MLA from Bhopal Dakshina-Pashchim, PC Sharma, is of the view that the loan waiver will encourage farmers to work with more enthusiasm.

“It (waiver) will motivate the farmers and as a result, Madhya Pradesh will get maximum output from them to boost the economy as well. Apart from this, our chief minister Kamal Nath is an expert in managing finances, and he knows how to get funds for farmers without harming the state’s financial strength,” Sharma says.

(Manish is a Bhopal - based freelance writer and a member of

Updated Date: Dec 24, 2018 19:31:13 IST