Players in Indian politics are writing a new grammar in Economics. So far we learnt that the basic principle of borrowing whether from the governments, banks, other financial institutions or private persons are to repay the amount to the lender. Most of the time it’s based on different interest rates and exceptionally ‘interest-free’ basis. Yes, sometimes the repayment schedules are adjusted as per the compulsions of the borrower or loans are waived in exceptional cases. However, the waiver cannot and should not become the rule of the day. Of late however the ruling parties on one hand and the borrowers, particularly farmers on the other have developed a regular practice to expect loan waiver each time.
Therefore, there is a growing and persistent demand from agriculturists for loan-waiver each year and now that they have gained an experience to see the governments bow to their prayer, various loan schemes for agriculture are actually turning out to be ‘donations’. Since in India agriculturists are a single largest chunk of voting population, the political parties are forced to announce loan waivers in their election manifestos and later pressurised to live up to the word.
Congress wrests power
Five states those went for polls recently, witnessed similar situation immediately after the verdicts of the elections were announced. The Congress wrested the power from the Bharatiya Janata Party (BJP) and wasted no time in announcing loan waivers to farmers. The Congress fulfilled the promise given by the party chief Rahul Gandhi in series of election rallies but what will happen to the state economy now? Of course, neither Rahul nor his lieutenants seem to be bothered.
The verdict or voting in five assembly elections came in. The big news was a rude surprise to the incumbent BJP, which lost power in three key states: Chhattisgarh, Madhya Pradesh and Rajasthan. While it was a landslide defeat in the first, in the latter two states, the BJP was outpaced by its principal rival, the Congress—though it was denied an absolute majority on its own, but had sufficient numbers to scramble across the line in an alliance. Undoubtedly, it was a shot in the arm for the Congress party and Rahul. The sub-text of the victory was the farm loan waiver promised by the Congress as the palliative to the victims of farm distress afflicting all three states.
Political and economic analysts believe, like it did for the Congress-led United Progressive Alliance (UPA) in 2008, it has, once again, contributed in tilting the electoral scales in its favour. Given the mentality and the penchant for quick-fix solutions, especially with a general election for Lok Sabha looming—which eschews risks—there is every reason to believe that this is likely to be the political mantra for the next six months. While the incoming Congress government in the three states will have to grapple with the fiscal consequences of its populist promise, its winning strategy has nonetheless put a much needed spotlight on Indian farming.
Unfortunately, instead of generating a structural response to resolve the mess in Indian agriculture, political exigencies have forced a stopgap option—which, in all likelihood, could set off a stampede of competitive populism. In the long term, the cure can well be worse than the problem. There is arguably a case for loan waiver in exceptional circumstances, no one can make out a case that it is the only solution on offer—especially given the associated moral hazard, which actually incentivizes defaults on loans. In other words it can, for a host of reasons, be part of a bouquet of solutions.
The cause and effect of farm distress are not identical across the country. In Madhya Pradesh, unlike say in a section of Maharashtra afflicted by a prolonged drought, the crisis is due to a surplus in farm output. Clearly, a solution that works in one state need not do so in another. Moreover Indian farming is no longer a story of food grains.
In fact, horticulture, a more remunerative crop, is now a dominant part of the agrarian economy and the share of foodgrains in the agrarian output is less than half; yet policy focus has failed to recalibrate accordingly. This reset in the agrarian economy’s size and composition has come with a spike in underlying risks. The nature of these risks is beyond the mitigation mechanisms in place at the moment. Efforts like crop insurance are baby steps in the right direction. Much more, especially in terms of an accessible market and products like derivatives should be introduced.
Moreover, leading on from the above, the terms of trade have moved dramatically against farm products. Confirming this, the retail inflation data for November shows that food inflation is now firmly in negative territory—at 2.64 per cent. This was the reason why farmers in Madhya Pradesh were exercised in the just concluded elections. If this was not enough the level of investment in agriculture, particularly in irrigation, is abysmal.
A structural shift
Finally, given the structural shift in the composition of agricultural production, the lack of a supply chain is more than apparent. Most horticultural products are perishables and hence the need for a cold chain. To say the least, it is clear that the farm crisis is on top of the political agenda. But before they take the plunge to harvest electoral gains by promising variants of farm loan waivers, politicians do need to keep in mind that the phenomenon of farm distress is not new. It has been in vogue since 2009. It only becomes a potent threat when it intersects with some other political issue.
Like it happened in Gujarat, when it intersected with the governance neglect that emerged in the vacuum created after chief minister Narendra Modi’s shift to take charge as the prime minister in 2014; similarly in Madhya Pradesh, it intersected with 15-year anti-incumbency against the BJP. Farm distress and loan waivers may be a necessary but not a sufficient condition guaranteeing electoral victory. Let’s hope the wisdom will prevail upon our political community and also amongst farmers.
—The writer is a political analyst and former Member of Parliament (RS).
