As per estimates by rating firm Crisil, if all affected states also announce farm loan waivers the Uttar Pradesh, Maharashtra, Karnataka and Punjab did, then the total cost the exchequer could be up to Rs 2.5 lakh crore or 0.5% of GDP.
It has termed farm loan waivers as a “paradox” in a year of a normal monsoon. The rating firm has said that the cost of loan waiver could be significantly high for Tamil Nadu, which has the highest outstanding agricultural loans among states. Kerala, Madhya Pradesh and Rajasthan, too, could feel some pressure.
The pain points for the farmers are all too visible. And unless measures to lower this pain are planned and implemented carefully, and soon, there could be a gaping hole in the exchequer as well.
Firstly, it covers only a tiny fraction of farmers. The loan waiver as a concept excludes most of the farm households in dire need of relief and includes some who do not deserve such relief on economic grounds.
Second, it provides only a partial relief to the indebted farmers as about half of the institutional borrowing of a cultivator is for non-farm purposes.
Third, in many cases, one household has multiple loans either from different sources or in the name of different family members, which entitles it to multiple loan waiving.
Fourth, loan waiving excludes agricultural labourers who are even weaker than cultivators in bearing the consequences of economic distress.
Fifth, it severely erodes the credit culture, with dire long-run consequences to the banking business.
Sixth, the scheme is prone to serious exclusion and inclusion errors, as evidenced by the Comptroller and Auditor General’s (CAG) findings in the Agricultural Debt Waiver and Debt Relief Scheme, 2008.
Lastly, schemes have serious implications for other developmental expenditure, having a much larger multiplier effect on the economy.
Proper identification: For providing immediate relief to the needy farmers, a more inclusive alternative approach is to identify the vulnerable farmers based on certain criteria and give an equal amount as a financial relief to the vulnerable and distressed families.
Enhance non- farm income: The sustainable solution to indebtedness and agrarian distress is to raise income from agricultural activities and enhance access to non-farm sources of income. The low scale of farms necessitates that some cultivators move from agriculture to non-farm jobs.
Improved technology, expansion of irrigation coverage, and crop diversification towards high-value crops are appropriate measures for raising productivity and farmers’ income. All these require more public funding and support.