Loan waiver is not the solution  

Loan waiver is not the solution  

Since Independence, one of the primary objectives of India’s agricultural policy has been to improve farmers’ access to institutional credit and reduce their dependence on informal credit

Context:

• It is time that the country had revisited the credit policy with a focus on the outreach of banks and financial inclusion.
• While the flow of institutional farm credit has gone up, the rolling out of the farm waiver scheme in recent months may slow down its pace and pose a challenge to increasing agricultural growth.

Why is it in news?

• There is a serious debate on whether providing loans to farmers at a subsidised rate of interest or their waiver would accelerate farmers’ welfare.
• At the global level, studies indicate that access to formal credit contributes to an increase in agricultural productivity and household income.
• However, such links have not been well documented in India, where emotional perceptions dominate the political decision quite often.

Report of a recent study:

• A recent study by the International Food Policy Research Institute reveals that at the national level, 48% of agricultural households do not avail a loan from any source.
• Among the borrowing households, 36% take credit from informal sources, especially from moneylenders who charge exorbitant rates of interest in the 25%-70% range per annum.
• More importantly, the study using the 2012-13 National Sample Survey-Situation Assessment Survey (schedule 33) finds that compared to non-institutional borrowers, institutional borrowers earn a much higher return from farming (17%).
• The net return from farming of formal borrowers is estimated at 43,740/ha, which is significantly greater than that of informal sector borrowers at 33,734/ha.
• Similarly, access to institutional credit is associated with higher per capita monthly consumption expenditures.

What is the initiative taken by the government?

• The government has improved the flow of adequate credit through the nationalisation of commercial banks, and the establishment of Regional Rural Banks and the National Bank for Agriculture and Rural Development.
• It has also launched various farm credit programmes over the years such as the Kisan Credit Card scheme in 1998, the Agricultural Debt Waiver and Debt Relief Scheme in 2008, the Interest Subvention Scheme in 2010-11, and the Pradhan Mantri Jan-Dhan Yojana in 2014.

What are the measures to be taken?

• The credit market is to be expanded to include agricultural labourers, marginal and small land holders.
• It is, therefore, important to revisit the credit policy with a focus on the outreach of banks and financial inclusion.
• The government must direct sincere efforts to protect farmers from incessant natural disasters and price volatility through crop insurance and better marketing systems.
• It should be understood that writing off loans would not only put pressure on already constrained fiscal resources but also bring in the challenge of identifying eligible beneficiaries and distributing the amount.
• Accelerating investments in agriculture research and technology, irrigation and rural energy, with a concerted focus in the less developed eastern and rain-fed States for faster increase in crop productivity and rural poverty reduction can bring a lot of difference.