India Owes a Debt to Its Farmers

The Indian farmer is not just a poor, helpless victim who deserves a waiver because he cannot pay. The root cause of the debt trap is that his income has not increased with rising expenditure due to state policies.

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Representational image. Credit: Flickr commons

As Punjab joins the list of states to declare farm loan waivers, the political scales are now heavily tilted in favour of this idea. The government of Telangana, followed by Andhra Pradesh, had taken the lead in announcing loan waivers for farmers. But the latest round – Uttar Pradesh followed by Maharashtra and now Punjab – has set the stage for a nation-wide movement to offer farm loan waivers in the run up to the 2019 Lok Sabha elections.

At the same time, the world of opinion-makers has almost unanimously rejected the idea. A number of economists and policymakers have warned against the spread of this ‘virus’. Editorial pages are full of arguments against this ‘mindless populism’ and compulsions of electoral politics. Bankers have talked about the ‘moral hazard’ that such a decision might invite. Economists worry about its implications for the fiscal health of the governments. Many agricultural experts have described it as a gimmick that would not address the plight of the farmers. The Reserve Bank of India (RBI) governor has sounded a warning bell. The Union finance minister has washed his hands off the burden of such loan waivers.

Farmer movements tend to attack such arguments for their hypocrisy and consider them evidence of political conspiracy against the farmers. Their suspicion is well founded. Did you hear this moral outcry when in 2009 the Manmohan Singh government gave a bailout of – hold your breath – Rs 3 lakh crore to the Indian industry in anticipation of a possible effect of global meltdown? Or when the government ‘restructured’ massive corporate loans on ridiculous terms? Do we hear fiscal warnings as the government considers a bailout to the telecom and power sector even as we debate the ethics of loan waivers to the farmers? How come the RBI governor, who was conspicuous by his silence during demonetisation, found his voice on this issue? Wasn’t it the finance minister’s boss who made this promise of loan waivers in Uttar Pradesh?

Yet this is not an answer. Two wrongs do not make a right, as the TV anchors are quick to point out. We must face this fair and square – are farm loan waivers justified?

Much of the criticism of the idea of farm loan waivers stems from asking a wrong question – are farm loan waivers the solution to the woes of Indian farmers? The obvious answer is no. The waiving of a loan may be a full remedy for an industry facing a one-time, unexpected business cycle failure. It cannot solve all the problems of the Indian farmer who faces an enduring crisis. Farming is unremunerative, often a loss-making business. Unless we address this fundamental issue of farmers’ income, mere loan waivers would only postpone the problem and would lead to yet another loan waiver. So, it cannot be anyone’s case that loan waivers are sufficient. The real question should be – can the crisis of income be resolved fully without wiping out the existing burden of debt? Is the farm loan waiver necessary, even if not sufficient?

Let us take up the moral-contractual argument first – a loan once taken must be returned. Of course, yes. Contracts should be respected, except when keeping it becomes impossible due to circumstances beyond one’s control. Or when the entity is too big to fail. These are precisely the grounds on which bailouts and write-offs are given to big corporations. If this is a fair argument, it applies with greater force in the case of farmers. An overwhelming majority of Indian farmers are in no position to pay back their debts. Their income is below subsistence level, if not negative. This is not because they are lazy or inefficient. They are victims of circumstance beyond their control – adverse terms of trade, indifferent government policies, climate change. And they are surely just too many to be allowed to drown. Enforcing a loan contract in such a situation is inhuman and immoral; it renders the contract infructuous.

We need to take this argument further. Actually the farmer is not just a poor, helpless victim who deserves a waiver for he cannot pay. We need to look at the root cause of this debt trap. The farmer is sunk in loan as his income has not kept pace with his rapidly growing costs and expenses. This is mainly due to state policies over the last five decades. Beginning with the famine of 1966-67, policymakers focused exclusively on ensuring adequate and cheap supply of food-grains. This was a laudable objective. But the economic burden of this moral responsibility was transferred to the farmer. Government policies were designed to keep crop prices down, causing havoc to the farmers’ economy. Over the last five decades, farmers have subsidised the national economy to the tune of hundreds of crores. So, the country owes a debt to the farmers. Farmers’ debt to the banks is a small fraction of this national debt owed to them. Writing off the existing debt is actually a cheaper option for the government. Instead of looking at loan waiver as a dole, it should be seen as partial payment of arrears or gratuity, long overdue.

Finally, let us take the fiscal argument – can we afford it? Well, this is a relative and a political issue. It depends on our priorities. And that depends on who ‘we’ are, on what India is. Usually, this ‘we’ is the TV watching, opinion-making class that has no connection with rural India. Even this tiny but powerful class must consider the fact that the Indian success story depends on rural consumption. If this ‘we’ includes all Indians, including majority farmers, the issue of affordability appears in a different light. Surely, if we can afford bullet trains, tax waivers, bailouts, loan restructuring for corporates and one of the biggest import budgets for defence, we can also afford a big, one time relief to the farmers.

This line of reasoning does not answer all possible questions and objections to farm loan waiver. There are indeed many questions that ought to be considered carefully while designing a loan waiver – would we end up penalising those farmers who paid their dues in time? How do we prevent rural banking from collapsing in the wake of such a big waiver? How do we persuade any farmer to pay up the next time? How do we save the farmer from debt trap of the private money-lenders? And above all, how do we address the fundamental issue of securing a minimum level of income for the farmers, irrespective of the vagaries of the nature and the market? A loan waiver that does not consider these issues carefully risks being a failure. That indeed is the biggest risk in the current wave of loan waivers that do not address any of these issues.

That is what I wish to persuade the critics of loan waivers about – instead of discussing rights and wrongs of farm loan waiver, let us shift to discussing when and how of a one-time farm loan waiver along with an assured income for the farmers.

Yogendra Yadav is a political activist and psephologist, and founder of Swaraj Abhiyan.

By arrangement with The Tribune