Farm reforms need not be a lost cause in India

News: Recently, a lawsuit against the Patiala Central Cooperative Bank was heard by India’s Supreme Court. This case drew attention to an attitudinal problem in the farm sector.

What is the issue between farmers and Patiala Central Cooperative Bank?

The bank sought to pay less compensation than what was ordered by a High Court. The bank gave an argument that such cases would cause financial distress because farmers are not repaying the loans. It is because they are expecting a waiver once a new administration takes charge after next month’s Punjab polls.

The apex court saw merit in this and hence lessened the bank’s burden. It highlights the issue of poor credit discipline.

How farm loan waiver is a cause of concern?

First, vote bank politics over the decades have reinforced this informal social contract. Hence, farmers are not at fault to view loan waivers as bonus or part of an unstated social contract with the state.

For example, a farm-loan waiver declared during 2009 general election by Centre worth ₹60,000 crore helped the party in retaining power. Thus, it became a tool in the hands of political parties.

Second, all waivers usually impose fiscal costs that are usually unaffordable. Also, such an approach is bad for lenders and also discourages farm reforms.

Finally, these facilities have turned the cultivators more into state suppliers instead of business units that maximize earnings by adjusting the market constraints. It is causing stagnancy in this sector. Demand and supply are increasingly misaligned.

What is the way forward?

First, use such write-offs for a bigger reason.

Second, loans should not be mistaken for grants, and they should be an elementary aspect of any reform exercise.

Third, prices set by freely-traded agricultural crops should play the role of reformists, which signals scarcities and overflows. It would help farmers to adapt their expenses and effort to market reality.

Fourth, Insurers and future deals can help in reducing risks.

Fifth, Reform-minded states should take up a model bill drafted by the Centre in 2017 and secure farmers from exploitation by private buyer cartels.

Source: This post is based on the article “Farm reforms need not be a lost cause in India” published in Livemint on 19^th Jan 2022.