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It will sedulously foster the culture of non-payment

The controversy over the waiver of agricultural loans proposed in the budget refuses to die down.

In the populism sweepstakes, politicians of all hues and persuasions are vying with one another to seek an improvement in the scheme; at least one party has mooted the extension of the coverage to include farmers with holdings up to 10 hectares.

The amount involved is gargantuan and even now, the modalities of financing this bail-out are not clear. The chorus of approval suggests that reason and wisdom are at a discount in this debate.

Let us examine the broad canvas. Rural India is enmeshed in a crisis that is systemic and severe which is starkly brought home by reports of suicides by farmers in large numbers.

This crisis is two-fold - one, stemming from the decelerating growth in agricultural production that directly affects the income of farm households and two, the lack of employment opportunities that make for uncertain livelihood on a continuous basis for millions.

Both of these do not lend themselves to a quick-fix solution ; sad to say, the various government schemes have hardly made an impact in respect of both.

Having said this, let us be candid in admitting that there has been no widespread agricultural distress emanating from massive crop failures.

We have done as well as could be expected; the monsoon has been generally good in recent years and if we were not able to cash in on this advantage, the blame lies elsewhere. In this scenario, the small and marginal farmers are the worst hit and, hard-pressed to make both ends meet, they think of extreme solutions.

A more proximate cause for the grave situation in rural heartland could be the price spiral at a time when incomes are sagging.

According to official price indices, both the consumer price index for rural labour and the one for agricultural labour have been moving upward and the inflation rate, which had touched almost 10% at one point is now above or close to the 6% mark. Thus, the most vulnerable sections of our population are exposed to the inflationary epidemic.

How does a farm loan waiver serve the interests of the farmers in this setting? If, indeed, their plight is grave, a waiver of interest for a specified period or a rescheduling of loans would have the right course to adopt.Now, credit discipline will be a casualty.

Those farmers who made Herculean efforts to pay their dues to the bank on time are left in the lurch, while defaulters are rewarded for their laxity in this respect.

Worse still, such of the rural households who depended on their own savings to fund the expenses on the farm will rue their decision.

It is the official policy to entice new class of borrowers within the purview of institutional lending.

Now they need no coaxing at all. The culture of non-payment of loans will be sedulously fostered and all and sundry will make a beeline to the cooperatives, rural regional banks and commercial banks for loans. A rescue act of this kind sets an unhealthy precedent.

But, is there any other way out? There is and the government need not look beyond the Radhakrishna Committee report on rural indebtedness.

It is thorough, well-documented and contains several remedial measures to tackle this problem; among these , debt waiver did not find a place.

This was admitted by the finance minister in his Budget speech when he observed that, “ the Radhakrisha Committee examined rural indebtedness in all its aspects but stopped short of recommending waiver of agricultural loans”. What this committee had suggested was devoid of populist overtones. After noting that more than half of the farm households do not borrow from institutional sources and that they are paying usurious rate of interest to borrowings from moneylenders, it wanted the banks to make one -time term loans to such farmers to free themselves from their clutches. This is not all. It mooted a Moneylenders Debt Redemption Fund with a corpus of Rs 100 crore to operationalise the scheme.

Among other things, the Radharkrishna Committee said that those who repaid their dues promptly must be rewarded — the very class who got a raw deal in the farm debt waiver scheme announced in the budget — and a rescheduling of loans and interest waiver for two years as well as fresh loans to farmers affected by natural calamities. But most important, it wanted the institutional sources to expand their reach.

Timely and adequate credit by toning up rural financial architecture is needed and for this, it has proposed the creation of a Rural InfrastructureDevelopment Fund. Self-help Groups to help small and marginal farmers, steps to augment output and to reduce production and marketing risks and toning up the extension agencies are among the other ideas that find a place in this report.

However, all these recommendations are devoid of populist flavour but require a great deal of effort to take a concrete shape.

So, under the prevailing dispensation, something to catch the popular imagination is needed. The farm waiver is the result of such a thinking and damn the cost and the consequences.