Farm loan waivers can derail India's growth story -Ramesh Chand

-Hindustan Times

Loan waiver provides strong disincentive for those who repaid loan on time and perverse incentive for default. But the most serious effect of the waiver is potential risk of fiscal slippage .

India’s agricultural economy witnessed significant changes during the post reforms period, many of which were positive, but some were negative. Income of farmers could not keep pace with their aspirations and fast growth in the income of non-farm workers. Agricultural prices became highly volatile, at times falling too low, and at other times going very high. This period also experienced a fast shift towards the commercialisation of agriculture and market oriented production, which subjected farmers to a high level of market risk. All these factors shifted the discourse on agriculture from “development” to “distress”. This occurred despite witnessing a small acceleration in the growth rate of farm income and an increase in government support for agriculture in various forms. Currently, the total Central and state subsidies going for agriculture sector are estimated to be over Rs. 2.2 trillion, constituting close to 10% of agricultural GDP and 12% of average farm income.

The main cause for farmers’ discontent is the low level of farm income. Farmers have been seeking higher prices to address this. To meet this demand, the Central government announced a change in cost criteria for fixing minimum support prices (MSP) and thereby substantially raised MSP for kharif 2018 and rabi 2019 crops. Simultaneously, the government also expanded procurement operations to oilseeds and pulses. This has pulled up the farm harvest prices of almost all kharif crops in the 2018 harvest season, though mandi prices in many cases and crops remained below MSP. This was the first season after the announcement of MSP based on the new cost concept and procurement operations did not go as far as planned. Paddy farmers this year received a price that was 7% higher compared to 2017 season despite depressed market situation and record production. Higher MSP announced by the government resulted in an increase in the net income of paddy farmers by close to 10% or Rs. 14,000 crore. Similarly, soyabean, maize, cotton, arhar, and other major crops fetched much higher income this year compared to previous year. These achievements, which benefit all farmers, are not highlighted by experts and missed by the media obsessed with showing stories which can be related to farmers’ discontent.

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Hindustan Times, 4 January, 2019, https://www.hindustantimes.com/analysis/farm-loan-waivers-can-derail-india-s-growth-story/story-6anu1JCiDtN9RxIvtLuyTM.html

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