Farm-Loan Waivers and the long-term solutions

Following demonetisation and a poor monsoon, the farmers in India went into distress as they could not repay their loans. The country saw dramatic protests by farmers over their suffering and demand for farm-loan waivers. This prompted the Centre and State Governments to offer relief of reduction or complete waiver of loans. However, let's us look us how farm-loan waivers in India is viewed and how it will impact our economy.

Farm-Loan waivers in India

The State Governments of Uttar Pradesh and Maharashtra have already sanctioned the farm-loan waivers worth 60,000 crores, while Tamil Nadu, Punjab, Madhya Pradesh, Gujarat, Haryana, and Karnataka are still demanding the farm-loan waivers by organising various protests. The nation's cumulative loan waiver demanded by the farmers will amount to 3.1 lakh crores.

Some State Governments offer reliefs to the farmers based on their land-holdings instead of loan-waivers. But this will increase the burden on the ex-chequer considerably.

Farm-loan waivers and the capital expenditure

While the media and commentators emphasize that the farm-loan waivers will be a means of addressing farmers' distress, the financial experts say it will undermine the honest credit culture. The Reserve Bank of India has already raised concern over this saying, ‘There is a risk, unless there is an existing fiscal space in the State Government budgets or some space is found'.

While it may alleviate the burden of the distressed farmers, it will have an adverse bearing on the fiscal viability of states and impact on the credit discipline. Investors in bank stocks may have to worry as waivers may add to the non-performing assets of the banks.

Long-term solutions to agrarian crisis

Farm-loan waivers may provide temporary relief to the farming fraternity, but what is need of the hour is seeking long-term solutions to solve the farmer woes. Making agriculture sustainable by reducing costs, offering protection through insurance schemes will enable the farmers to fend for themselves at times of crisis.

Setting up food processing industries, cold storage and marketing channel are some of the ways to help the farmers. Technological interventions like e-trading need to be encouraged to make much impact in farming.

Farmers are the backbones of the country. Farmers committing suicide has been on the rise in various states across the nation. It is important to protect the interest of the farmers and the banks without bringing much politics into it.