Temporary relief

Agitating farmers in the state of Maharashtra had reportedly called off their strike on Saturday, after Chief Minister Devendra Fadnavis agreed to a whole host of their demands, although there are reports to the contrary that certain sections were intent on continuing their strike. The strike, called last Thursday, had turned violent after protesters took to vandalising vehicles transporting milk, produce, and meat to cities. They had been demanding waivers on farm loans, revised rates for their produce following low prices, eight hours of electricity-free daily, higher prices for milk, the implementation of the MS Swaminathan Commission report on a holistic national farm policy and free drip and sprinkler irrigation, amongst others. In the face of mass protests across Maharashtra, Fadnavis announced a farm loan waiver of Rs 30,000 crore for small and marginal farmers with land holdings of five acres. It is the biggest such write-off for farmers in the state. "Of the state's 1.36 crore farmers, 31 lakh have not been able to access crop loans since 2012. Restructuring of loans for this segment was not permissible. Therefore, the only way forward was to write-off their loans," he said. State officials indicate that an estimated 40 lakh farmers were expected to benefit from the government's decision to waive loans. It has also promised the formation of a state-level commission to manage the costs farmers incur and the prices at which they sell their produce. Marginal farmers constitute nearly 80% of the active agricultural population in the state. For the interim, the loan waiver is expected to help farmers to weather the credit storm. The impact of these loan waivers on the state government's coffers is evident, which is already struggling under the weight of public debt worth Rs 4 lakh crore. Before buckling to the pressure imposed by striking farmers, Fadnavis was adamant that loan waivers weren't the answer to their troubles.

"Higher capital investments in agriculture adequately backed by water and power supplies over a longer period will bring greater economic stability to small and marginal farmers. Any crop loan waiver is not a lasting solution. It helps farmers get rid of debt but doesn't increase his repaying capacity when he goes for his next crop loan. Instead of a one-time crop loan waiver, which will certainly give us political mileage, our policies are to free farmers from the vicious cycle of debt," Fadnavis said earlier this year. More than half of India's 90 million households engaged in agriculture are in debt, and they need the government's support. But the evidence seems to suggest that when a government spends vast sums on loan waivers, it reduces the scope for necessary public expenditure in agriculture. However, the concerns of the agriculture sector in India are structural in nature. What it needs is serious reforms, including making land leasing easier and legal, better access to markets for farmers, and massive investment in areas such as irrigation, superior storage facilities, water saving practices, and in-depth research into better agricultural practices to reduce dependence on the monsoon. Do farm loan waivers address these concerns? Do they resolve any of the above concerns? The answer is no. What is needed from governments is greater political will to implement all these reforms and measures. What farmers need is better remuneration for their crops, particularly in a time when land holdings are growing smaller, the quality is soil is deteriorating, and input costs are rising. Loan waivers may ease the farmer's debt burden to some extent, but it would do little to solve the root and branch issues.

There are also reports that the Maharashtra government's Rs 30,000 crore waiver package will primarily benefit farmers in the western part of the State most—a region marked by better access to irrigation and the cultivation of key cash crops. In other words, a significant portion of the loan waiver benefits will be directed to a region that hasn't seen too many farmer suicides, whereas regions like Vidarbha and Marathwada which are most affected by the farm distress might receive a lesser share. In a recent analysis of land-holding data in Maharashtra, experts found that the maximum number of marginal farmers were located in the well-irrigated districts of western Maharashtra. Fiscal conservatives generally believe that farm loan waivers have a deleterious effect on the budgets of both the Union and State governments, and increase inflation. During his tenure as Reserve Bank of India Governor, Raghuram Rajan argued that debt waiver schemes are ineffective and limit the flow of credit to farmers after their loans are waived off. Last month State Bank of India chief, Arundhati Bhattacharya, received a lot of flak for saying, "credit discipline breaks when you waive off farm loans". At a time when public sector banks have written off massive loans for big businesses, it may seem like an insensitive statement. But scratch beneath the surface a little further, and Bhattacharya makes a valid point. A 2014 World Bank study on the UPA government's 2008 farm loan waiver presented some worrying insights. "We find that the stimulus program had no effect on productivity, wages or consumption, but led to significant changes in credit allocation and an increase in defaults. Post-program loan performance declines faster in districts with greater exposure to the program, an effect that is not driven by greater risk-taking of banks. Loan defaults become significantly more sensitive to the electoral cycle after the program, suggesting the anticipation of future credit market interventions as an important channel through which moral hazard in loan repayment is intensified," the study said. Moreover, none of these schemes plays a role in improving the lives of landless farmers, who have little or no access to bank loans, and other small farmers stuck under the thumb of vicious moneylenders.