Farm loan is temporary solution to a permanent crisis.
In India, 55% of the population is involved in farming. According to NSSO, 90% of India’s farmers have land less than 2 hectares. Most of the farmlands are rain-fed. Average farm households make less than 6500 Rs. Per month. Most of them take a loan from the informal sector. Most of the money is used on seeds or fertilisers rather than in mechanization which is the reason behind less productivity. If there is any vagary in monsoon or drought productivity is affected drastically. According to an agricultural specialist at the Indian Council for Research, farmers
are selling below their cost and authorities are trying to keep prices low to accommodate the growing demand in cities means it is completely urbanized. All these things are leading to bankruptcy and indebtedness which is raising suicides by farmers who are our food producers. They would quit farming if they can. To give instant relief and reduce social suffering governments (UPA in 2008 and NDA in 2017) found loan waivers as the best temporary solution. According to M Swami Nathan, it is necessary for the short term but in long-term doesn’t provide
secure credit system and it does nothing with ending the conditions, root cause which leads to such problems. Also, not helpful to the farmers who don’t have land to have access to the bank.
Arundhati Bhattacharya, the chairperson of State Bank of India, said it disrupts “credit discipline” amongst borrowers and that “today the loans will come back as the government will pay for it but when we disburse loans again then the farmers will wait for the next election expecting another waiver. Loan waivers encourage willful defaulters and discourage farmers who pay their loan. Also, making it tougher for the bank to continue lending to these segments. Since most of the loans from moneylenders, private sectors hence it is only helping richer farmers who use the money for building farmhouse marrying off their daughter. Also, it makes difficult for corporation banks to remain in competition when farmers stop
paying.
Three states UP, Maharashtra and Punjab have written off the loan which is nearly 2.5% of GDP said by Global Banking Group. But for this, money is taken from the centre which leads to increment in fiscal deficit and forces governments to reduce their expenditures in other important areas as UP government has to cut expenditure on key activities like energy(-51%), social welfare and nutrition(-25%). Loan waivers in few states will lead to demand by other states to put enormous pressure on fiscal deficit which will antagonize global capital and slowdowns economy.