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In defence of farm loan waivers

By B S Raghavan
December 26, 2018 10:18 IST
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Farm loan waivers should not be regarded as expenditure but as incentive and investment, argues B S Raghavan, the distinguished civil servant.

Farm loan waiver

Photograph: Reuters

There is a predictable knee-jerk reflex of conventional economic pundits, on mentioning freebies such as free or concessional supply of electricity for agriculture, farm loan waiver, distribution of free laptops, television sets, grinders, bicycles, shoes and the like to students and others belonging to low-income groups and generally any food and agricultural subsidy and concession to the poor and needy:

It is to condemn it as squandering away tax-payers's money by ruling dispensations to pander to vote banks and as a subterfuge to come to, and remain in, power.

It is interesting to recall that when K Kamaraj as chief minister of (the then) Madras state introduced the mid-day meal scheme in schools, the same outcry ensued, but Kamaraj braved it and went ahead.

By now, it has earned high tribute from exalted international agencies like the World Bank for its contribution to improvement of vital parameters such as health and nutrition and reduction in child and maternal mortality, besides, of course, helping the spread of education among the poor by better attendance in schools.


Currently, the waiving of farm loans by the three newly elected governments of Chhattisgarh, Madhya Pradesh and Rajasthan, and Congress President Rahul Gandhi's insistent call to the National Democratic Alliance government at the Centre to adopt a similar course are agitating the voluble commentariat.

Many articles have appeared pontificating on the grievous damage such a nation-wide waiver would inflict on the economy.

R Jagannathan, for instance, who has a fan club of his own investing him with the authority and credentials to take the cudgels on such topics, in his mouthpiece, Swarajya , bluntly calls the pressure mounted by Rahul Gandhi 'an economic sabotage of growth' and Rahul himself 'an economic saboteur'.

Critics and sceptics of his ilk miss the fine print that appears year after year in the country's Budgets under the title 'Revenue foregone'.

As per information furnished to Parliament in reply to a question on December 20, 2018, a total of Rs 17,15,461 crore revenue has been foregone by the government due to tax incentives (direct and indirect taxes) in the last three financial years.

That amount represents the revenue readily given up by governments in favour of business and industry in the form of a variety of tax incentives and concessions, quite apart from non-performing assets (Rs 4 lakh crore) of banks (of which between 2012 and 2015, Rs 1.14 lakh crore has been written off) and what the business and industry tycoons default in the form of loans.

As against this, a cumulative farm loan waiver encompassing all the states comes to Rs 3.1 lakh crore.

But Jagannathan makes out a case against farm loan waivers by giving his version of the difference between corporate loans and revenue foregone on the one hand and farm loans on the other, to rub in the distinction between corporate and farm loans, and argue for a hard stand in regard to the latter.

Says Jagannathan: '...corporate bad loans are not written off across the board; only loans involving specific defaulters get written off when a business fails.'

'Farm waivers, on the other hand, are nearly universal.'

'Secondly, after the legislation of the Insolvency and Bankruptcy Code, when bankers take haircuts, the businessperson who defaults loses his entire business assets. When farm loans are written off, no farmer loses his asset.'

In saying so, he seems to take no account of the realties on the ground of rural agricultural India and the daily struggle farmers have to wage to make both ends meet because of the rising burden of fixed and variable costs and the palpable erosion in agricultural income.

There are also extensive studies carried out by dispassionate academic scholars on how electricity, seed, irrigation and fertilizer subsidies have actually boosted agricultural production and income.

One such study Electricity Subsidy in Punjab Agriculture: Extent and Impact by Dr Karam Singh, published in the October-December 2012 issue of the Indian Journal of Agricultural Economics, typically has this to say:

'The decline in the gross margin (profit over operational costs), without electricity subsidy, from rice, would have been about 20 per cent to the all Punjab farmers and 25 per cent to the tubewell farmers in 2010-11. The decline in the profitability of wheat would be much lower at about 5 to 6 per cent.'

'In other words, the electricity subsidy increases the profitability of rice by as much as 25 per cent, because of its significantly larger requirement for irrigation than for wheat (and/or other crops).'

'It is also...... important that any containment of the electricity subsidy to the farm sector should accompany the matching visible improvements in the infrastructures and institutions that would cut down the farmers' fixed costs, reduce the market risks and improve the relative guarantee of profitability of their production efforts and alternatives, and thereby strengthen the base of growth of the farmers' incomes.'

The urban-cum-corporate biased analysts must remember that there is plenty to be gained by farm loan waivers in terms of food, nutrition and livelihood security and rural prosperity, considering the fact that as of 2014, the share of agriculture to GDP was 17.9 per cent, and India is the world's second largest producer of agricultural products.

India's rank is 12th in industry and 11th in services, their respective contribution to India's GDP is 24.2 per cent and 57.9 per cent.

Thus, in my view, farm loan waivers should not be regarded as expenditure but as incentive and investment.

Finally, a word generally about freebies:

I have personally witnessed during my visits to various places how TV sets have been great help in broadening the mental horizons of the poor people and in a sense, have served as agents of political awareness and social change on a conspicuous scale with low investment.

Similar are the benefits derived from laptops.

Well-to-do urban dwellers with most comforts found for them cannot imagine the self-esteem generated in people at or below the poverty line by ownership of such simple things as grinders and bicycles.

In such matters, our politicians, with their ears to the ground, have much greater empathy, sensitivity and imagination than the elitist, English-educated, Western-oriented intellectuals (so-called).

B S Raghavan, retired member of the Indian Administrative Service, was secretary of the National Integration Council during the prime ministerships of Jawaharlal Nehru, Lal Bahadur Shastri and Indira Gandhi.

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