Capitalism isn’t for farmers

At a time when Punjab Chief Minister Captain Amarinder Singh was pleading before the Union Government to relax the borrowing limit by Rs 10,000-crore to fund its farm debt waiver scheme, came the news report that the public sector banks had quietly written-off a record Rs 81,683-crore worth of bad debt for the financial year ending March 2017. This is in addition to the Rs 70,000-crore cash flow benefits that have been provided to the stressed telecom sector this year.

While Punjab is seeking relaxation under the Fiscal Responsibility and Budget Management (FRBM) Act 2003, which limits the current annual borrowing limit to 3 per cent of the Gross State Domestic Product (GSDP) so as to enable the state government to raise additional market borrowing to meet the farm debt liability, the question that crops up is that while both the industry as well as the farmers default the banks, why are the write-off rules different for the two categories of bank defaulters.

The argument is that state governments are expected to maintain fiscal discipline by ensuring that the budget deficit does not exceed 3 per cent. But why then, between 2012 and 2017, when Rs 2.46-lakh crore of corporate non-performing assets (NPAs) have been written-off, no state government was asked to bear the burden from its own revenues? Why hasn’t the RBI passed on the burden instead to the state governments, where these companies were located, asking them to find resources for the write-off? For instance, one of the steel majors, having an outstanding debt of Rs 44,478-crore has its headquarters in New Delhi. Why isn’t the Delhi government being asked to write off the staggering amount?

If not, then the question that needs to be therefore asked is why should the state governments be asked to waive farm loans from its own resources? Just like the industry, why doesn’t RBI then direct the nationalised banks to waive the outstanding farm debt as well?

Soon after UP Chief Minister Yogi Adityanath had announced the farm loan waiver, Finance Minister Arun Jaitley had made it clear that the states will have to find their own resources for farm loan waivers. What he implied, in other words, was that farm loan waivers are a state subject. But having enacted the Insolvency and Bankruptcy Code (IBC) last year, and having empowered this year the RBI to launch insolvency proceedings against big defaulters, I expected the Finance Minister to also tell the banks to find their own resources or ask the state governments to write off. After all, industry, too, is a state subject.

It didn’t happen. In fact, SBI chairperson Arundhati Bhattacharya went a step ahead. While she made it abundantly clear that the farm loan waivers lead to credit indiscipline, she had no qualms in pleading for an economic bailout for the telecom industry, which, too, is reeling under ‘unsustainable’ stressed loans of Rs 4.85-lakh crore. The Chief Economic Advisor Arvind Subramanian later justified the writing-off of corporate NPAs, saying “this is how capitalism works.” I wonder why capitalism doesn’t work the same for farmers.

Moreover, if farm loan waiver ‘undermines honest credit culture’ and could affect the ‘national balance sheet’ as the RBI Governor Urjit Patel had remarked, it is time to know why the Rs 2.46-lakh crore write-off by banks in the past five years is seen as inevitable for economic growth and makes economic sense. This certainly smacks of double standards. The discrimination that farmers face when it comes to bank defaults, therefore, needs to be addressed in the same manner as the corporate write-offs.

First, farm loans need to be clubbed with corporate loans. Since both agriculture and industry are state subjects, it is rather unfair to treat them separately when it comes to loan waiver. State governments should, therefore, refuse to write off outstanding farm loans from its own revenues. Not only for the total farm bad debts of nationalised banks, let the cooperative bank/societies loan write-off, in turn, be the responsibility of the National Bank for Agriculture and Rural Development (NABARD). Secondly, the FRBM Act 2003 needs to be suitably amended so as to exclude the burden of farm loan waivers from the states’ expenditures.

The author is an agricultural policy analyst. Views expressed are personal.