The agricultural scenario in India is not very pleasant. Multiple reasons affect the rise of agricultural growth, which includes fragmented land holdings, depleting quality of soil, lack of awareness of the quality of land, etc. All of these, combined with a lack of credit facility, leaves farmers in a vulnerable situation.
Access to credit facilities is the basic requirement of farmers of India since the majority of the people engaged in agri-activities are poor and in dire need of money. Moreover, illiterate farmers who don't want to undergo the tiring process of applying for a loan, choose to borrow money from private moneylenders at a much higher interest rate. This only makes the pile of problems bigger for farmers. In fact, 87% of the expressed reason of farmer's suicide in India was due to indebtedness. This clearly indicates the need of solving this chronic distress of farmers.
To solve the indebtedness and tragic credit situation of farmers, the Indian government offers to waive the loans given to them. There have been two nationwide loan waiver programmes in India after Independence:
1. The first nationwide farm-loan waiver in independent India was implemented in 1990 by the VP Singh-led government. It cost the government Rs 10,000 crore.
2. In 2008, the Agricultural Debt Waiver and Debt Relief Scheme, implemented by the UPA government, involved an outgo of Rs 71,680 crore.
Since then, various state governments have tried to temporary relieve the burden of debt from farmers. But this again leaves the question unanswered; even after the exorbitant outgo of money for the betterment in the agricultural scenario, why is the situation of farming still distressing? Loan waivers offered by the government, it seems, do not fulfil the core purpose of making farmer's lives better in the long run but merely gives a temporary relief at the huge economical cost. This is the time we have to reinforce a solution that works in the longer run, while also making our farmers empowered in real sense.
Loan Waivers might seem like a good option to go for in solving the short-term problem of farmers, but it has several impacts that affect certain sectors of the economy. Here are a few impacts of Loan Waivers:
1. Free Rider Problem: While the majority of the farmers are poor, each and every farmer doesn't need to be in debt. Some farmers may take loans even if there is no need, in the hope of the next loan waiver scheme. This will impact the farmers who are genuinely in need of loans.
2. Reluctance of Banks to Lend Credit: Subsequent losses and loan waivers given to farmers are making it hard for banks to lend money to people who are in the agricultural field. If this keeps on happening, farmers will have to depend on private money lenders, where chances of farmer's exploitation are high.
3. Not in Favour of Interests of Depositors: Banks receive money from the depositors and lend money to borrowers under different contracts and agreements. The difference between borrower’s and lender’s interest rates is the bank's profit. Thus, the loss to the bank, due to loan waivers, is directly or indirectly against the interests of the depositors.
4. Not Right Morally: Loan waiver schemes will shake the credit discipline as it might look like a good option for a temporary solution but it might be a moral hazard in future. This is because even those farmers who would be able to pay off their loan might not do so to reap the benefits from loan waivers in future.
This takes us to the conclusion that a better, more effective and a solution that works for the long run should be reinforced to help farmers in real sense. Loan Waivers might be useful in bringing temporary relief, but more empowerment of farmers is possible.
