Agriculture

Union Budget 2017-18: Urgent Need for an Improved Farm Debt Waiver Scheme

Despite all the talk of a big push to the agricultural sector, the last Union Budget turned out to be a missed opportunity to provide genuine relief to farmers. The government must rectify this.

The budget this years needs to urgently address the deepening agrarian crisis in the country. Credit: Reuters/Files

The budget this years needs to urgently address the deepening agrarian crisis in the country. Credit: Reuters/Files

The finance minister will be presenting the Union Budget 2017-18 at a time when the agrarian economy is in deep crisis. The farmers of the country have been suffering from a longstanding neglect of the sector, which is a source of livelihood for a majority of the workforce. Making matters worse for the agricultural sector, 2014-15 and 2015-16 turned out to be drought years. The production of food grains fell from an all-time high of 265 million tonnes in 2013-14 to about 252 million tonnes in the next two years. The data provided by the Central Statistical Organisation shows that the average growth in value added (at 2011-12 prices) by agriculture and allied sectors during the three years (2013-14–2015-16) was down to around 1.7%. This is also a period when international prices for major crops, such as paddy, maize and oilseeds, were falling and input prices rising.

The impact of this crisis is also visible in the alarmingly high levels of farmer suicides in the country. Recent media reports suggest that there was a 42% rise in farmer suicides between 2014 and 2015, although many states concealed the number by reporting zero farmer suicides. National Crime Records Bureau statistics reveal that bankruptcy or indebtedness accounted for around 39% of farm suicides in 2015. The statistics from the All India Debt Investment Survey of the NSSO show rising incidence of rural indebtedness from informal sources in the post-liberalisation era. Ignoring all the obvious signs of agrarian distress affecting crores of poor peasants, the government decided to impose a severe cash crunch through demonetisation. Media reports show that demonetisation has wreaked havoc in the lives of farmers as prices have hit rock bottom and farmers are incurring huge losses. The upcoming Union Budget is an opportunity to provide some relief to the reeling peasantry.

The agrarian situation was similar around a decade ago and an expert committee headed by R. Radhakrishna was formed by the government in 2007 to suggest measures to provide relief to farmers. The committee opined,

“Admittedly, farmers’ indebtedness, particularly due to growing and borrowing from high cost informal sources, is one of the major manifestations of the crisis that needs to be addressed forthwith. In the short run, some concrete measures have to be taken up to reduce the debt burden of vulnerable sections of the peasantry.”

In a first in the era of economic liberalisation, then finance minister P. Chidambaram announced the Agricultural Debt Waiver and Debt Relief (ADWDR) scheme in Budget 2008-09. The ADWDR was a recognition of the plight of the farmers suffering from an acute agrarian crisis and an attempt to provide some relief. The ADWDR scheme provided for full waiver on all ‘eligible loans’ overdue on December 31, 2007, for marginal (holding up to one hectares) and small (holding between one to two hectares) farmers, and a one-time settlement scheme for farmers holding more than two hectares of land under which a rebate of 25% was given against the payment of the balance 75% of the loan before June 30, 2009. This deadline was extended by a year because of the failed monsoon season in 2009-10. A total of Rs 52,500 crores were released for the scheme, with about 192.59 lakh farmers reported to have benefitted from it.

But the ADWDR scheme was critiqued from different quarters. There was some genuine criticism that it did not take into consideration the plight of a large majority of famers who borrow from moneylenders and other informal sources, and that it did not consider agricultural labourers. It was also criticised on the grounds of being merely a poll sop, a waste of public resources and worse, was seen as an encouragement for farmers to default on loans. While there is merit in the argument that public resources must be used with utmost care so that it reaches the intended beneficiaries, there is also an abhorrent class-bias and double standard in some of these criticisms. After all, many who vehemently argue against loan waiver to the farmers also vocally support or at least do not oppose the massive tax exemptions to corporates, which has reached gigantic proportions (Rs. 5.49 lakh-crore in the last Union Budget) over the years. Simple arithmetic shows that while the present size of tax exemptions on corporate income tax, excise and custom duty help only a handful of the ultra-rich (the top 1% who owns 58% of India’s total wealth), a farm loan waiver of one tenth the size would help crores of farmers who live on the cusp of life and death because of faulty economic policies.

Some state governments like Punjab and Tamil Nadu have recently implemented their own farm debt waiver schemes. The Centre should come up with a scheme in consultation with various stakeholders like the state governments and peasant unions. The new scheme must be designed to enable a waiver of most of the debt taken by poor farmers and agricultural labourers from formal as well as informal sources. The scheme must be planned taking into account the heterogeneity of regions and farm size-class categories and pave the way for a permanent financial inclusion of the peasantry. An audit by the comptroller and auditor general (CAG) exposed various problems in the implementation of the ADWDR, like exclusion of the intended beneficiaries, wrongful inclusion of ineligible people, irregularities in reimbursement, lack of proper documentation and failure to issue debt waiver certificates in many cases. The CAG also recommended that action should be taken against errant officials and lending institutions. For a new loan waiver to be successful, it is important to address the flaws in the design and implementation of the ADWDR.

Despite all the talk of a big push to the agricultural sector, the last Union Budget turned out to be a missed opportunity to provide genuine relief to farmers. While the claims of taking steps for doubling farm income by 2022 were asserted, there was a reduction in food and fertiliser subsidies in the Union Budget 2016-17. In recent years, big corporates like the Adani Group and GVK Power have been provided millions in loans despite the falling interest coverage ratio (ratio of net profits to interest payments – an indicator of the financial health of the firm). Thanks to such senseless lending, the public sector banks have accumulated NPAs worth millions. There can be no case in favour of needless lending to top corporates while refusing to address the problem of farm indebtedness. Along with a farm loan waiver, the government needs to increase the budgetary allocation for agriculture and rural development under relevant heads to ensure a rise in real income of the farmers so that they can break free from the debt-trap.

Ishan Anand is a visiting scholar at the University of Massachusetts, Amherst, and a doctoral candidate at JNU, New Delhi. Email: ishan.jsr@gmail.com