Electoral gimmicks like loan waivers push the attitudes of farmers in a wrong way.
What is the Supreme Court observation on Poor credit discipline?
In a lawsuit related to the dismissal of a daily-wage worker by Patiala Central Cooperative Bank the Supreme Court drew attention over an attitudinal problem in our farm sector.
Farm loan waivers schemes drive banks to financial distress and possible collapse.
No farmers were repaying the loans in anticipation of a loan waiver ahead of Punjab polls.
Farm sector has been strapped to the national mast of ‘food security’.
Many farmers expect that governments to assure the inputs as well as pay for the output. They see their role as state-appointed.
What is the history of farm loan waivers?
Ahead of India’s 2009 general election farm-loan waiver was declared by the Congress-led Centre worth ₹60,000 crore.
It was packaged as distress relief.
Various states run parties were quick to adopt that ploy.
Its lasting effect is visible in the handy tool of politics.
How it leads to poor credit discipline?
Farm-loan waivers been used in election manifests to win votes.
Overtime farmers view these as work bonuses they deserve.
They view it as an unstated pact with the state or as an informal social contract.
The loans are mistaken for grants.
In some states this serves as a tool for collective bargaining by tillers.
This approach is not only bad for lenders but also creates wrong attitudes that obstruct farm reforms.
Unless cultivators operate like business units rather than as state suppliers saving this sector from stagnancy will be difficult.
How it affects the Public Sector Banks?
Waivers leave loan books in a mess.
The lenders wait for state exchequers to pay the needful and also impose fiscal costs that are usually unaffordable.
What needs to done?
Behavioural Changes - Political parties need to avoid such pre-poll assurance of write offs. This will favour our economy for an even bigger reason.
The loans should not be mistaken as grants.
Changes in Market Mechanism - The prices set by freely-traded agricultural crops must play the reformist role of signalling scarcities and overflows
This will incentivize farmers to adapt their expenses and exertions to market reality.
Insurers and future deals could cushion their risks.
Farm Bills – The push for a market reforms stumbled due to failure to prepare the ground for it.
What was held out as freedom was seen by many farmers as a prelude to the termination of their services.
Rather than give up, we should reorient attitudes away from our statist system.
Reform-minded states should take up a model bill drafted by the Centre.
The provisions must be designed to secure farmers from exploitation by private buyer cartels.
