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Last updated: 25 Dec, 2018  

Farmer.9.Thmb.jpg Loan waivers vs. good economics

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Bikky Khosla | 25 Dec, 2018

Immediately after taking charge, the new Congress government in Madhya Pradesh announced a farm loan waiver and thus delivered on its poll promise to the state's farmers. This was followed by Chhattisgarh which announced a waiver worth Rs 6,100 crore for its more than 16 lakh farmers, and then by Rajasthan which announced another waiver that would cost Rs 8,000 crore to the state government. So, farm loan waivers are nowadays raining like never before, but the question is: are farmers really gaining.

According to a recent media report, eight state governments have promised to waive farm loans worth Rs 1.9 trillion since April last year. No doubt it is a whopping amount, but considering the hardship our farmers have been through, we may still argue in support of such a move. However, we all know things are not that simple. Farm loans are usually more politically motivated and less well thought-out and therefore show many fault lines.

In 2008, the Central government announced a one-time mega loan waiver package to write off loans of 3.7 crore small and marginal farmers, a move which has often been touted as a significant factor in Congress's stunning victory in the 2009 parliamentary elections. The scheme was later audited by CAG which revealed many flaws ranging from wrong inclusion and exclusion of beneficiaries to outright institutional corruption.

Economic reforms require a vision which our political leaders seldom display. No doubt the farm sector distress is more real than anything else at this moment, but waivers are not a silver bullet, particularly when they are announced in haste, without planning and only for political gains. The real solution to India's farm distress lies in overhauling reforms in the sector, and for this someone has to bite the bullet on some tough decisions for the sake of good economics.

I invite your opinions.

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