Loan waivers won't work: Here are 5 ways govt can resolve India's farm crisis

The Congress government in Punjab is the latest to jump on to the farm loan waiver bandwagon. On Monday, the government led by Captain Amarinder Singh, announced that it would write off Rs 24,000 crore worth of farm loans in the state. Before Punjab, Uttar Pradesh and Maharashtra, too, had announced loan waivers in the backdrop of farmers' protests. It won't be a surprise if the governments of Haryana, Tamil Nadu and Karnataka also announce similar waivers due to the rising pressure from farmers in their own states.

Such farm loan waivers are like administering Paracetamol to cure Tuberculosis. It will never resolve the deep-rooted distress in India's farm sector. Take the Rs 60,000 crore farm loan waiver announced by the UPA in 2008, for instance. If it had helped farmers, the agriculture sector wouldn't be in such a sorry state.

The government needs to be innovative to address the disease and not the symptoms. Here are five steps it should take.

A moratorium is enough

Giving outright loan waivers is not the solution. Farm cycles are 6 monthly and a farmer who is distressed in the current season, may be better off in the next farm cycle due to better harvest which fetches a good price.

Therefore instead of a waiver, the government should announce a one year moratorium on all sorts of payments for the farmers. This would ensure that an unfair burden doesn't fall on banks or state governments.

Sooner or later, farm income would improve and the farmers would be able to repay their loans.

Address the pricing problem

India's farm sector has been moving on two extremes for some time now. In a given year, either the prices of farm products are very high due to failed monsoon, or they would be at rock bottom when there is a bumper crop. This is what we saw in the case of pulse prices.

In 2014-15, when pulse production was deficient in the country, the prices of several pulses shot through the roof, forcing the government to increase imports. That decision helped farmers of other countries. But in 2016-17 when the domestic production of pulses soared, the price of pulses crashed and the government refused to procure the surplus produce. This policy must change.

The government must ensure that the farmers get good returns even when there is a bumper crop. There should be a separate committee that makes monthly projection of crop yield and controls imports as well as exports to strike a balance between high inflation and crashing farm prices. If a farmer makes good money during a bumper crop, he or she will build enough reserves to deal with bad crop years.

Ensure that industrialists also repay loans

A major reason for simultaneous demand for a farm loan waiver across the country is the fact that billionaire industrialists have been sitting on lakhs of crores worth of loans for over 5 years. Farmers feel, and justifiably so, that if an industrialist can get away with not paying back loans, why can't they, especially when the amounts involved are minuscule in comparison?

This narrative needs to be changed in favour of the 'importance of repaying loans' for a healthy economy.

We know how the government has created several political narratives – cow protection, nationalism, Hindtuva to name a few. But if it genuinely wants to save the Indian economy from impending disaster, it must use its machinery to build a narrative of responsible banking in the country. A narrative in which banks as well as its customers understand the importance of servicing loans.

Caring for small farmers

While farm loan waivers are announced on loans that are taken from the organised banking sector. A large number of farmers rely on informal sector lenders and pay exorbitant amounts as interest. Rates are often as high as 60%.

While successive governments have talked about improving farm credit facilities for small and marginal farmers, the ground reality is grim.

A study conducted by India Spend in Tamil Nadu says that small farmers are forced to borrow from the informal sector at high interest rates due to the former's ability to provide loans at a very short notice.

The government must try to fix the existing loopholes in the formal sector lending system and help improve the lives of marginal farmers in the country.

Centre must support states

The farm sector is important not because of its share in the country's economy but because of the number of people that are dependent on it. Therefore, it is the prime duty of the central government to actively participate in dealing with any crisis that strikes the sector. Unfortunately, the Union government is trying to wash its hands off the current farm crisis by leaving it up to state governments to find solutions.

The states do not have the bandwidth to deal with the issue on their own. Announcing farm loan waivers is the most that they can do in their capacity, but this is not a long term solution. Therefore, it is important for the Union government to actively participate in finding a solution to the current problem. The way individual states are currently trying to address the crisis will only aggravate the problem in the coming years.