Income transfer can ease farm distress -A Narayanamoorthy & P Alli

-The Hindu Business Line

It scores over loan waivers as it benefits all farmers and gives them more control over the cultivation and sale of their produce

There is an illusion across various quarters that a one-time farm loan waiver can remove all the hardships farmers have been going through over the last 15 years or so. This illusion has been occupying more space in public discourse in recent months because of competitive politics and the fast approaching general election. Despite the Centre and various States announcing loan waivers at different times, the conditions of farmers are deplorable even today. Can loan waiver be a panacea for farm distress? Or can direct income transfer, similar to the Rythu Bandhu Scheme (RBS) introduced by Telangana in 2018, rescue the farmers from the agrarian distress?

Why loan waiver is not useful

For more than 15 years, farmers have been struggling to get adequate income mainly due to increased cost of cultivation and un-remunerative prices in the market. Instead of creating a conducive atmosphere to increase farm income on a permanent basis, policymakers at different periods have been resorting to the quick-fix solution of loan waivers, which do not cover even one-third of the farmers.

Probably, the first countrywide loan waiver, of around Rs. 10,000 crore, was announced in 1990 when VP Singh was Prime Minister. In 2008, the Manmohan Singh-led government announced the biggest farm loan waiver of Rs.52,260 crore. Between 2014 and 2018, as much as Rs. 1,82,802 crore was reportedly waived by seven States (Andhra Pradesh, Uttar Pradesh, Maharashtra, Kannada, Rajasthan, Punjab and Tamil Nadu). However, even after such massive loan waiver, there is no evidence to show that the livelihoods of farmers have improved.

Farm loan waiver cannot permanently cure the deep-rooted agrarian crisis. Those supporting loan waivers must understand that a large chunk of farmers still borrow from, among others, moneylenders and traders. As per the report of the All India Debt and Investment Survey (2013), the share of non-institutional debt among the cultivator was 36 per cent. The Rangarajan Committee on Financial Inclusion (2008) also observed that about 66 per cent of marginal and small farmers still rely on moneylenders for credit needs.

The Situation Assessment Survey of Farmers (2012-13), conducted across the country by the National Sample Survey Organization (NSSO), shows that only 23 per cent of the farmers had borrowed money from institutional sources. Shockingly, only 14 per cent of marginal farmers and 24 per cent of small farmers got credit from institutional sources.

According to a recent survey conducted by Nabard [All India Rural Financial Inclusion Survey in India in 2016-17], only 30.3 per cent of farmers have taken loans from institutional agencies.

From this it can be inferred that almost 70 per cent of farmers do not enjoy loan waivers. In particular, the percentage of small and marginal farmers who benefit from loan waivers will be very low as their share of borrowing from institutional sources is meagre. How can a debt waiver scheme that does not take into account these anomalies be a remedy for the deep-rooted agrarian distress? Why should taxpayers’ money be paid only to a small portion of farmers?

It is clear now that the loan waiver announced during different periods have miserably failed in alleviating farm distress. Barring the large farmers who cultivate high value commercial crops, all other farmers are in deep crisis. It is, therefore, necessary to formulate a direct income transfer (DIT) scheme that can support all farmers on a regular basis.

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The Hindu Business Line, 28 January, 2019,

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