Why Punjab needs incentives, not loan waivers -PK Joshi, Tajuddin Khan & Avinash Kishore

-The Financial Express

Punjab farmers would benefit if the state govt subsidised the adoption of appropriate technology and diversification of crops.

The newly-elected government in Punjab is considering a loan waiver for farmers to reduce agrarian distress. According to the recent Situation Assessment Survey of Farmers (SASF), the average outstanding loan is nearly three times higher in Punjab compared with the rest of India (Rs 3.31 lakh versus Rs 1.22 lakh). Farmers in the state may be heavily indebted, but loan waiver is not the best way to help them. The SASF also shows that less than 20% of the marginal farmers in Punjab owed money to financial institutions, compared to nearly 80% of the large farmers ( with holdings of more than 4 hectares).

The loan waiver, therefore will be of little help to smallholders who need the relief the most. Past experience shows that loan waivers do not reinvigorate investment in agriculture. The need for loan waivers every few years is itself a sign that they are not effective in bringing any sustained benefits to farmers. Instead of loan waivers, the Punjab government should offer farmers incentives to adopt technologies and practices that can make agriculture more profitable and sustainable. We share some of our ideas for incentives that may help both farmers and the environment.

Incentives for crop diversification: Rice-wheat cropping pattern dominates agriculture in Punjab. This cropping pattern offers stable, but low returns to farmers. A farmer earns less than Rs 100,000/ha from growing rice and wheat and only about Rs 60,000/ha if we also account for opportunity costs of land, family labour and capital invested in farm machinery. These returns are too low for India’s most productive farmers. Even these low returns are sustained by heavy input and output subsidies and a huge cost to soil, water and air. All efforts to promote crop diversification in Punjab through input subsidies and extension have failed miserably as area under rice has only increased over the last 20 years. More than a decade ago, the state government had planned an initiative to bring the private sector, state government and farmers together to promote production and processing of kinnow (a citrous cultivar). The new government needs to revive such initiatives to accelerate crop diversification.

Please click here to read more.