Agrarian economy needs wise policies more than loan waivers

Agriculture constitutes about 55 per cent of the Indian economy. Inevitably, it is the single-largest segment, well-surpassing other sectors. An undesirable churn within the agricultural sector is a pointer to the prevailing ordeals and the necessity for correctives. Furthermore, it is a crucial indicator of the livelihood conditions of India’s rural population; the proportion of that population is substantially more than the urban and semi-urban population. In India’s democracy, apart from the pressing urgency to preside over the amelioration of this sector, there is an inherent political angle. The risk of resorting to populist measures for garnering transient political support, to the negligence of structural reforms and sustainability, is real.

The contemporary narrative of the country’s agricultural economy entails higher input costs for agricultural produce than its selling price, leading to rural debt, economic hardships, farmer suicides and the attendant violent unrest. This year has witnessed a good harvest of rice and wheat. Therefore, there is relatively more quantity of supply than demand in the market. Consequently, price levels have depressed. The consumers have gained, but the producers — the farmers in this case — are in a quandary. Many have incurred significant costs to produce the crop. The slack in market prices has robbed them of profits. As an aftermath, their debts to the rural moneylenders and banks are likely to persist. The ordeals in their livelihoods are unlikely to lessen anytime soon.

The principal issue for a large section of farmers is that the government — central or state — is not purchasing their products through a Minimum Support Price (MSP). That price is often demarcated by governments to absorb any commodity, even at higher prices than permissible by the dynamics of an organised market, at any point in time. MSP could give some relief to distressed farmers as they would receive somewhat satisfactory prices, in the event of decelerating price levels, low market demands or a crop failure. Alternatively, loan waiver is the issue for agitation.

A series of violent agitations, road blockades, casualties from attendant violence, and farmer suicides have occurred in Madhya Pradesh, and to a lesser extent in Maharashtra. This economic unrest has given an opportunity for political mud-slinging, with the Opposition accusing the government of insensitivity and indifference to the plight of farmers. As a remedy, the state governments of Madhya Pradesh, Maharashtra, and Punjab have announced loan waivers. Uttar Pradesh and Karnataka might follow in the same footsteps. An estimated amount of Rs 1.6 trillion could be the net financial loan waiver. It would be about 0.9 per cent of the country’s Gross Domestic Product (GDP): the total value of goods and services produced in a country in one year.

However, the resultant attributes of loan waiving would be at seemingly cross purposes. It would undoubtedly provide necessary relief to farmers by freeing many of them from the debt burden. Nevertheless, it would tilt towards undermining the credit system, raising a question mark for future agricultural lending from banks and other financial institutions.

An acceptable equanimity would be arrived at by earnestly concentrating on effective, sustainable, and wise policies in agriculture. Emphasising on appropriate rural infrastructure, crop insurance, organised credit, enabling greater organic agricultural production and constricting the space for middlemen and unscrupulous moneylenders between farmers and the market are pressing imperatives. 

Notwithstanding admirable progress in economic reforms, inefficiencies and corruption still exist. The agriculture sector is also not immune to these maladies. The growing corporatisation of agriculture is often blamed for this.

But, a strong combination of organised, accountable competition in agriculture coupled with farm subsidies would go a considerable way in lifting this sector from deep-seated distress. More than 3,00,000 farmers have committed suicide over the last two decades. Effective and bona fide decisions, political will and administrative skills are urgent necessities.

The author is an analyst, writing on international economics and world politics