Arvind Kejriwal's Punjab plan contains a lot for farmers, but the loan waiver idea is problematic

The kisan has returned to become the mascot, hope and trump card for Rahul Gandhi and Arvind Kejriwal in crucial 2017 Assembly elections in Uttar Pradesh and Punjab respectively. The war cries in both agrarian states offer adequate evidence to show that it’s not corruption or development — the usual poll planks — but the kisan who will fight the political battles next year. For this reason, he has been brought from the farm fields to election rallies. [caption id=“attachment_2996434” align=“alignleft” width=“380”] File image of Delhi chief minister Arvind Kejriwal. PTI[/caption] It is a good sign, provided the poll managers won’t swallow their promises post-elections and will continue to recognise the existence of the farmer even after voting day. Past evidence shows otherwise, but one can always hope for a change in the approach given that 2019 is not too far. A look at the details of the Kisan Manifesto — as reported by PTI — released by the Aam Aadmi Party (AAP) convener Arvind Kejriwal in Punjab appears to have promising plans to address the woes of the kisan in the agrarian state, where the over-indebted, hapless farmers live in pain and distress. If one puts aside the promise of a loan waiver, against which Firstpost has argued in two earlier articles (Read here and here ), some of the aspects of Kejriwal’s action plan for farmers are reminiscent of the erstwhile Andhra Pradesh’s regulation of money lending Act promulgated in 2010 that subsequently triggered a crisis and correction phase in the country’s microfinance industry, but helped to check the arm-twisting of the poor in the southern state. AAP’s promises to re-enact Sir Chhotu Ram Act of 1934 (Moneylenders’ Debt) in which under no circumstances will the sum of interest payable exceed the principal amount — a key component of the Andhra law. Similarly, the party vows to take action against the coercive recovery practices employed by moneylenders if it comes to power. Also, in cases where the loan is deemed to be discharged, the government will take steps to release the holding from the lender to the debtor (farmer), the manifesto says. Kejriwal’s party also promises compensation for crop losses on a monthly basis to farmers and farm workers. Prima facie, these are steps that can certainly help address exploitation of the poor farmer in the state if fulfilled in letter and spirit. Punjab’s farmers’ are facing a grave crisis for survival. A Times of India report quoting a study by Patiala’s Punjabi University gives one the picture of the pitiable state the farming community lives in the state. According to this study — that covered 1,007 farm households in the state — the total debt of Punjab’s farmers stands at Rs 69,355 crore, of which Rs 56,481 crore is owed to the formal sector and Rs 12,874 crore is to private moneylenders. The main problem arises when the reliance of the farmer on private moneylender increases. Interest rates charged by private moneylenders are at a minimum, 24 percent to 26 percent in most cases and can go up to any level (in Andhra Pradesh, there were reports of private moneylenders charging as high as 60 percent to 80 percent rates of interest at one point). These lenders typically give money against the land or other valuable possessions of the farmer. Often, the chances of farmer repaying the principal amount in his lifetime are minuscule due to the burden of exorbitant rates of interest. The collateral eventually goes to the lender, creating distress in the farmer’s household. This pattern is true in any agriculture-dominated society whether Punjab, UP or Andhra Pradesh. Hence, any efforts from political parties to focus on the core details of farm-distress such as their borrowing pattern, indebtedness levels and compensation on crop losses in the event of natural calamities are welcome. Even after decades of Independence, India continues to be largely an agrarian economy, especially when it comes to employment and hence, farmers’ issues need to be addressed better. But not loan waivers But, as highlighted earlier, there is no logic in wooing the farmer with a loan waiver promise. It is equivalent to a freebie and offers, at the best, temporary relief to the farmer only for bigger troubles later. Worst, such announcements take a major toll the credit culture in the geography where it is made. Even the honest borrowers stop repaying their dues on the hope that their loan too will be waived sooner or later. There are examples from the past when the UPA-government waived Rs 70,000 crore worth of loans of farmers across the country and similar announcements came from the leaders of the newly-formed Andhra Pradesh and Telangana states. [caption id=“attachment_2998092” align=“alignright” width=“380”] File image of Congress vice-president Rahul Gandhi giving a speech in UP. PTI[/caption] Also, the question of whether the waivers benefit the actual beneficiaries — the small and marginal farmers — is also relevant whenever waivers happen. Not just Kejriwal in Punjab, even Congress vice-president Rahul Gandhi has kicked off his Kisan Mahayatra in poll-bound UP with a grand announcement to waive farm loans. This is also a major example where bad politics wins over good economics. The formal banking sector already has substantial exposure (which increases every year) to agriculture and allied activities. According to Reserve Bank of India data, banks’ exposure to this segment has grown from Rs 7.1 lakh crore in July 2014 to Rs 9.1 lakh crore in July 2016. This is an annual increase of 12-13 percent compared with 7.7-8 percent growth in gross bank credit. That would also mean that funding is not the major issue faced by Indian farmer. In fact, he is over-indebted. The problem lies in other areas such as getting a market-determined fair price for his crops, dealing with the middleman lobby, exorbitant interest rates and coercive recovery practices employed by the private moneylender that leads to suicides. If politicians can address these issues, even in the name of elections, it can offer major relief to the farmer: The real heroes of India.