FARM LOAN WAIVER -A SHALLOW RESPONSE , A CRITICAL ANALYSIS :

STATEMENT : All agricultural loans disbursed by scheduled [commercial banks, regional rural banks and cooperative credit institutions] (A) up to March 31, 2007 and overdue as on December 31, 2007 will be covered under the scheme

For marginal farmers (i.e., holding upto 1 hectare) and small farmers (1-2 hectare),
there will be a complete waiver of all loans that were overdue(A) on December 31, 2007 and which remained unpaid(A) until February 29, 2008. In respect of other farmers, there will be a one time settlement (OTS) scheme for all loans that were overdue on December 31, 2007 and which remained unpaid until February 29, 2008. Under the OTS, a rebate of 25 per cent will be given against payment of the balance of 75 %.

Government estimates that about three crore small(B) and marginal farmers (B)and about one crore other farmers will benefit from the scheme. The total value of overdue loans being waived is estimated at Rs.50,000(C) crore and the OTS relief on the overdue loans is estimated at Rs.10,000 crore.(C)

ANALYSIS:
-> which institutions, loan categories, and class of borrowers will be covered by the scheme -far from clear ..
-> (A)-Scheme applies to only those farmers who have outstanding loans .Majority of rural and farm households declare they have no outstanding loans or debt.And those who admit they have debt may not have instituional debt at all .Thus majority of the farmer community not applicable .
->(B)-Access to institutional debt and proportion of outstanding debts are skewed to larger farms ie. >> 2 hectares of arable land.
-> (A)WITHIN : What constitutes institutional loans : they include both direct(production and consumption needs) and indirect (trading,transport,distribution,processing of farm produce) lending .These indirct loans acoount for half of all loans on an average.Any justification on waiver of indirect loans ??
-> (C)-INR 60,000 Cr, thats bizarre and hideous , this estimate is far from clear and very very vague to say the least. There is good reason to believe that a generalised waiver of all overdues will benefit non-rural borrowers to a considerable extent; that the large majority of rural households, including those in the below 2 hectares(small and marginal) category will not benefit; and that the magnitude of benefit accruing to them will be considerably less than INR 60,000 Cr.

REPERCUSSIONS:This scheme would not address the current agrarian crisis in the way it is intended to .It would create a huge backlash in terms of attitude shifts in the farming community.Waivers would encourage borrowers to presume that they can sooner or later get away without repaying loans as corroborated by history.The culture of default by default would make a home in the farmer mindspace.There is statewide massive rural reform process going on and this waiver comes right at the wrong time : an irony of sorts.

WHAT HAD TO BE DONE INSTEAD:Faster pace of growth in the rural economy and an improved quality of education and health services was rather the call of the hour .Addressing deeper problems rooted in the overexploitation and degradation of land and water; government policies that encourage wasteful use of resources; the inefficiency of public systems responsible for implementing programmes, regulating the use of common service facilities, and ensuring quality infrastructural and support services would have done the job.