The numbers are startling. According to a recent report by SBI Research, farm loan waiver announced by the Centre and the State governments in the last 10 years aggregated ₹4.7 lakh crore. This, the report added, was as much as 82 per cent of the industry level bad loans today. Despite writing off so much debt, there seems to be no end to the farm distress. It has actually worsened in the last couple of years. And farmers continue to commit suicide.
It is clear that farm-loan waiver, a politically significant but economically debilitating measure, has had little impact on the plight of the farmers. Its effect so far has been akin to giving a pain killer to a seriously ill patient and ignoring the ailment that is causing the pain in the first place.
Like pain killers, farm-loan waivers have a bad side-effect. It worsens the credit culture among the farmers and in the process hurts the already fragile banking system. Farm loan non-performing assets (NPAs) in 201819 have risen to 12.4 per cent of the total bad loans in the banking system, up from 8.16 per cent in 201516. Why will a farmer repay a loan when he/she is certain that a waiver will be announced before the next election?
But the irony is that even after so many loan waivers, indebtedness of farmers remains high. This is be cause a large proportion of farm land (some say it could be as much as two-thirds) is cultivated by tenant farmers who do not own the land and hence are not eligible for any benefits. They, typically, borrow from moneylenders at high rate of interest and struggle to service the loan if their crop fails or gets a poor realisation. Some of them end up repaying the debt with their lives.
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January 17, 2020