Congress vice-president Rahul Gandhi ended the first phase of his Kisan Yatra in poll bound Uttar Pradesh demanding a ‘Kisan budget’ from the Narendra Modi government and promising (read here) that loans of UP farmers will be waived off within 10 days of forming the government in the state. Rahul cited the government’s recent move to merge railway budget with general budget, as reason to think of a Kisan budget.
He is wrong on both counts — as a poll strategy and the idea of helping the farmer. Both these ideas are going to help neither him win votes in UP, nor the farmers.
To begin with, assuming that a separate ‘kisan budget’ will help the farmer to get better prices for his crop is a foolish idea. The farmer already occupies a good part of the existing budget document. A different budget will be only a change in the documentation and process. The solution for better pricing for farm produce lies in creating the market mechanism to save the small farmer from the grips of the middle men and enabling real time information available on the price trends. Rahul should next work on making technology-based real time innovation available to small farmers in UP to improve their yield and lessen the dependence on seasonal rains for irrigation.
Also, funding is the last thing farmers would complain about ever. Consider this.
The total loan outstanding of Indian banks to agriculture and allied activities, is currently at Rs 8,82,900 crore, probably only second to loans to industries at the end of September. There has been a sharp growth in bank lending to farm sector over years. The figure was Rs 4,15,700 crore in 2009-10.
In other words, the loan outstanding has more than doubled in the five-year period as the UPA government and the subsequent NDA government has been pushing state-run banks to lend more and more to farmers by increasing the agriculture credit target every year. This apart, farm loan waivers (2008) and loan melas and financial aid through various schemes of nodal agencies like Nabard has targeted farmers. If money could have solved the problem, why our farmers are still starving and ending their life even today? So, dear Rahul, the issue is something else, which politicians like you should probe with honesty.
Secondly, farmers are prone to over-indebtedness. Because of his lack of financial literacy, knowledge and the idea that nothing will happen even if he doesn’t pay back money to sarkari banks, he happily accepts any fresh loans, farm loan waiver offers with both hands, only to repent later.
When farmer is a habitual defaulter on the books of banks, the bank would prefer to avoid taking further exposure to him and thus push him effectively back to the hands of private money lender. This is where the real plight of the farmer starts.
Unable to service the high rate of interest and recover the pledged property from the private lender, the farmer eventually comes face to face with the dangers of debt trap and, in some cases, ends his life, as we have seen in the past. The point here is pushing the farmer to draw debt far beyond his capacity is the biggest evil one could do to him and the banks (which takes a huge hit on the credit culture.
This is precisely what politicians, in this case Rahul, are doing to them. It is a classic case of bad politics dominating good economics in the society. Gandhi has been quoted as saying economists have told him that loan waivers have helped the ‘overall economy of the country and not just farmers’. It’s not clear which economist told him that, but perhaps Rahul should seriously rethink taking advise from those economists.
Rahul's Gandhi’s rhetoric exposes his lack of understanding about the core issues farmers face, beyond ‘loan waivers’ and his failure to learn from the past. He needs to think only this, if loan waivers helped, why does the Congress party’s seat count still linger in lower single digits in states like UP even after the mega waiver in 2008? Rahul would do well pondering over these questions. Firstpost has argued strongly against the idea of loan waivers in an earlier article (read here) explaining how it destroys the credit culture of the farmers almost immediately after such announcements.
“The very announcement of loan waivers destroys the credit culture of the borrowers and has a wider cascading impact across that particular region. Past experience shows this begins to happen on Day One of the announcement. Even the honest borrowers, who have been paying his dues diligently, will feel fooled and stop paying back, 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, making them stop all fresh funding to everyone who have defaulted on payments,” the article said.
Already, farm loan NPAs (non-performing assets) are a big chunk of bad loans for many banks. According to senior bankers, this has happened when the UPA announced Rs 70,000 crore loan waiver in 2008 and when the Andhra, Telangana governments announced loan waivers to farmers in 2014. Thus ultimately, it harms both the bank and the borrower. It takes years to clear the mess and reinstate the trust between the two.
Rahul’s loan waiver promises and the idea of ‘kisan budget’ show that he is doing anything but executing a well thought out election plan addressing the real issues of the targeted vote bank and improve the Congress party’s fortunes in that state. It only shows the scarcity of intellect in the Congress’ strategy chamber. Ideas like ‘Kisan budget’ and ‘loan waiver in 10 days of coming to power’ are not even funny as the now famous ‘cot vanishing act’ seen in Rahul’s ‘Khat sabhas’.
Updated Date: Sep 24, 2016 12:55 PM