'Farm loan waiver' seems to be the flavour of the season.
First, it was Congress vice-president Rahul Gandhi in Uttar Pradesh and now it’s Aam Aadmi Party (AAP) chief Arvind Kejriwal.
The idea is simple – identify poll bound agrarian states, go there and tell farmers that they don’t have to pay back their bank loans once their party comes to power. But, the question is, who will pay this money then? No one knows and apparently nobody cares. After all, it is public money.
After Gandhi marked the beginning of his election campaign in UP by launching the loan waiver promise to the 'Kisans' of the state at his ‘khaat’ (loot?) sabhas, Kejriwal has now duly taken over the baton by employing a similar trick in Punjab. It is also an agrarian state where the farmers are facing distress.
According to a PTI report, Kejriwal said there that if AAP comes to power in Punjab, the farmers of the state will be made debt-free and their loans will be waived off. "For rest of the farmers, loan interest will be waived and till December 2018, all farmers of Punjab will be rid of debt," the AAP leader said at a presser in Ludhiana.
The question to Kejriwal here is, what gives him the belief that loan waivers will help Punjab’s poor farmers – the same question Firstpost posed to Gandhi when he employed the farm loan plank in UP. In an earlier article, Firstpost had argued how such irresponsible, poorly-thought out statements can actually bring hardships to the farmer instead of benefitting him.
Let’s look at what farm loan waivers actually do to help the poor farmers.
As explained earlier, the very announcement of loan waivers destroys the credit culture among the borrowers – from day one. Even the honest borrowers, who have been paying his dues diligently, will feel deluded and stop paying back while waiting for the waiver to happen at some point. Such deterioration in the credit culture will immediately punch holes in the agriculture loan portfolio of banks in turn forcing them to put a stop to all fresh funding to anyone who has defaulted on payments. There are examples from the past to corroborate this.
It happened when the UPA announced Rs 70,000 crore loan waiver in 2008. It again happened when the Andhra, Telangana governments announced loan waivers to farmers in 2014. In both cases, it ultimately harmed both the bank and the borrower.
It takes years to clear the mess of the resultant impact. The next time a farmer who has enjoyed a waiver walks into a bank seeking a fresh loan, the banker would be hesitant to grant it considering his credit history. He will then be forced to walk into the traps laid by private money lenders, risking everything that he owns. So what real benefit does the farmer enjoys at the end of this whole exercise?
Secondly, Neither is Kejriwal promising to waive the loan amount of Punjab farmers using AAP’s fund, nor does Gandhi intend to utilise money from Congress’ coffers for the UP farmers (except perhaps for those 2000 disappeared cots). Every time, a loan waiver happens, it is the state-run banks (which are the major lenders to farmers) that take hit, or in other words, it is the public money that is used.
One of the major reasons why India’s state-run banks are in their current pitiable state is the longstanding practice of directed lending enforced on them by the incumbent governments. India’s state-run banks are on the verge of a bad loan crisis and are capital-starved despite substantial chunk of capital infusion by the government over years.
Instead of just feeding the farmers once and pushing them into an eternal debt trap, the Kejriwals and Gandhis of the world should work towards changing policies that have forced them into their current plight. If they really want to help the farmers, they should work on issues like lack of land resources, technology, exploitation by middlemen and no support from government.
However, farm loan announcements are easy short-cuts for politicians.
Sadly, the farmers do not realise this when the politician offer them these freebies. Even for political parties, past evidence shows that debt waivers have hardly translated into votes. The only proven fact so far is that loan waivers have always laid a bigger trap for the aam aadmi.
Updated Date: Sep 08, 2016 19:23 PM