This can become an unending cycle — this business of loan waivers before and after every election. And can ruin the financial health of state governments while not offering the farm sector a durable solution to its deep-rooted structural problems. Of course, competitive populism means that no party is immune from the very costly virus of buying votes with the promise of freebies to various segments of the population at periodic intervals.
The surprise win of the Congress Party in the three Hindi heartland states has yet again triggered a wider wave of loan write-offs, ostensibly for farmers in distress. What has lent further agency to the vote-buying exercise is the looming parliamentary poll a few months hence. The reality often is much different. We will come to that later. Kamal Nath was the first to announce the write-off of farmers’ debt soon after he took over as chief minister earlier this week.
The total relief to farmers for loans up to Rs 2 lakh owed to cooperatives and scheduled banks comes to about Rs 36,000 crore which is one-fifth of Madhya Pradesh’s total annual budget expenditure of Rs 164,295 crore. The state’s debt to gross state domestic product ratio is above 25 per cent already. In Chhattisgarh, which has written off Rs 6,100 crore in farm sector loans, the amount constitutes nearly eight per cent of the state’s annual budget. The third state to fall in the Congress’s kitty, Rajasthan, has already a huge debt to GSDP ratio at 33 per cent.
How it will write-off tens of thousands of crores in farmer’s loans without worsening its financial state is unclear. Now, this is not the first time the state governments have sought to skirt around the endemic problem of farm sector woes by offering them the palliative of loan write-offs. These do not really help farmers. Instead, if structural reforms were undertaken to ensure that agri produce fetches growers equitable and fair price, if more land was insulated against the vagaries of weather, if farm sector costs were rationalised, if the role of middlemen curbed, if not eliminated altogether, if artificial restrictions on the movement and sale of farm produce could be removed, if warehousing cold chains for storing agri produce …
Well, these and more such steps could alleviate the hardships of the small and marginal farmers. Also, the truth is that agriculture cannot support such a large portion of the population ostensibly engaged in the sector. While accounting for less than fifteen per cent of the GDP, nearly seventy per cent of the working population subsists on it.
Unless there is a shift from agriculture to industry and business, small, medium or big, farm sector will remain in crisis, reforms or no reforms. The debt write-offs every now and then induce a culture of irresponsibility among the borrowers, with even those with capacity to repay shirking from doing so in the hope that these will be written off in the next round of elections. Again, not all farmers benefit from the loan waive-offs.
No, in some states the percentage of farmers who get relief is as low as 25 per cent of the total farm workers. It is because some till land on contract and it is the land-owners who may avail the benefit of write-off. In other cases, the size of farm holdings limits the number of potential beneficiaries. In yet another case, the loan amount may be slightly over the limit set by the state for write-offs. As a CAG report revealed, the banks writing off the loans often misdirect the benefit or create hurdles in its smooth implementation.
Unfortunately, the burden of the periodic write-off falls on the honest tax-payers who are deprived of the benefit of their contribution to the public purse in several ways, such as pothole-free roads, 24×7 water and electricity, better educational and health facilities, etc. But so long as our politics remains mired in reckless populism, the culture of entitlements and freebies is unlikely to end. Modi avoided free giveaways so long as he could but nearer to the Lok Sabha poll coupled with the setback in the state elections seems to have eroded his will. This is regrettable.
Editorial
