Will farm loan waiver go the way of the property tax repeal? -Indira Rajaraman
All recent reforms mooted on farm credit do not address the needs of farmers for whom formal credit doors are shut
Farm distress has been a sadly persistent feature for the past five years, the initial two years on account of failed rains, but in the last three years because of policy failure on a number of fronts, including, most visibly, unremunerative prices for farm produce. That it shapes electoral outcomes has also been known since, at least, the Gujarat elections. But what is new with the recent five state elections is that a particular palliative, farm loan waivers, is now seen as a necessary promise for electoral victory. There are some curious features to this.
A useful parallel to recall is the common practice 10-15 years ago, when electoral manifestos for state elections routinely promised to do away with property taxes. That crippled the ability of urban municipalities to collect the only tax that falls within their fiscal domain, and was a major factor underlying urban decay. The 13th finance commission curbed this practice by requiring that states enact irreversible rights of levy of the property tax for municipalities within their jurisdictions, in order to qualify for receipt of local government grants from the centre. That then forced political parties to think through the promise of property tax repeal, and to recognize that it only benefited a small class even within the urban sector, which actually owned property. The electoral gains of such a promise were clearly insignificant. Today, property tax repeal is absent from electoral manifestos.
A farm loan waiver similarly benefits only farmers who have access to formal credit, by virtue of having the necessary ownership documents—commonly estimated at 30% of farmers (varying across states). So, a waiver becomes a further benefit accorded to a minority that had privileged access to a bank loan in the first place. The privilege accrues from the massive interest rate differential between formal and informal credit.
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