Are farm loan waivers a political gimmick? -Vikas Dhoot
Several interventions are needed on the demand and supply side to alleviate farm distress
Loan waivers remain the preferred solution for governments to tackle farm distress. S. Mahendra Dev and M. Govinda Rao talk about the inability of governments to think of long-term solutions to tackle farm distress, in a discussion moderated by Vikas Dhoot. Edited excerpts:
* Despite farm productivity rising, severe distress in the sector is a concern. How grave is the situation, especially for small and marginal farmers?
S. Mahendra Dev: Farm distress is real because there have been low agricultural prices and low farm incomes. The farm sector growth rate is much lower than in earlier periods. As a result, farm prices are low despite production rising. The demand is also low. So, whether the increase in farm production is enough for incomes is not clear. For small and marginal farmers, the additional problem is that the size of land holdings is declining. Earlier, the average size was two hectares, now it has come down to nearly one hectare. Marginal farmers have less than half a hectare. With these sizes, income is difficult to sustain. The recent stress is also because prices are much lower than the MSP [minimum support price] in the market, while long-term problems such as low capital formation in agriculture persist. Public investment in the sector as a percentage of GDP is also stagnant. So, these factors, along with two years of drought, have led to this. Another thing is that the non-farm sector creates jobs. As per NABARD [National Bank for Agriculture and Rural Development] data, 23% of rural income is from agriculture, so the rest is from non-farm activity. The rate of growth in agricultural wages has stagnated and is lower than in earlier years when MGNREGA and the construction sector helped boost wages. The rural economy overall, agricultural as well as non-farm, is facing a demand problem and low incomes, which has caused farm distress.
* Would you say the government’s focus on managing inflation in the early years of its tenure and the inability to generate jobs that could have created non-farm avenues for the youth in farming households has contributed to the stress?
SMD: Yes. The agriculture focus is short term, [which is why we have] loan waivers, but the focus on how to generate incomes and jobs has been lacking. The construction sector was earlier responsible for higher wages and demand, but now that sector is also stagnating.
* Eleven years ago, the UPA announced a massive farm loan waiver scheme. Do you think it’s an easy way to deal with a far more complex problem?
SMD: Yes, the UPA did, but the impact on farm income was limited. Second, institutional credit to farmers is just 64%, so the rest is from non-institutional sources. The large farmers corner the institutional credit, and small and marginal farmers get non-institutional credit at interest rates of 25-30%. Moreover, there is a moral hazard problem as banks get affected — farmers say they don’t have to repay the loans as there will be a waiver some time. There are opportunity costs for this loan waiver spending. Several States have started them, including Madhya Pradesh, Rajasthan and Chhattisgarh. This will also have fiscal implications. But some people say banks have written off ?5 lakh crore of corporate sector debt, so why not farmers? But both the write-offs are bad.
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