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Implications of Farm LoanWaiver

By:March 19, 2008 Dr. Arun Bhadauria

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Mere parsimony is not economy.

Expenses and great expenses may be an

essential part in true economy

Edmund Burke

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Farm Loan Waiver in Union Budget

2008-09 Biggest waiver till date.

100 percent write off of overdues of small

& marginal farmers holding upto 2 hectareland and 25 percent of large farmers.

Rs 60,000 Crores (actual Rs 60314

Crores) waived out of which 84 percent for

small & marginal farmers and 16 percent

to others.

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Process to be completed till June 30,2008.

Loan from money lenders & other privatesources are out of loan waiver. (As perNSSO 60 percent of total farm loans aresourced from money lenders).

4 Crores beneficiaries. Range for write off was Rs. 100,000

crores, which later revised to Rs 60000.

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How will it be done?

Cooperatives will discharge 55 percent.

Scheduled Commercial Bank will discharge 35

percent

RRBs will discharge 10 percent.

Money will be Paid to the Banks in 3 years.

Provisions for money will be made from tax

revenue Rs. 15000 Cr budgeted in 2009-10

Rs 12000 Cr in 2010-11 & Rs 8000 Cr in 2011-12.

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Past Experiences

Loan waiver of Rs 10000 Cr by V.P.Singh

& Rs 9000 Cr by Devi Lal Govt led to

closure of several cooperatives- Dr. Alagh, Former Minister of

State for Agriculture

Non-availability of proper land records

posed difficulty in targeting actual

beneficiary.

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Purpose?

If it is to pull farmer out of distress in

Vidarbha & Andhra, it is under question.

Most of distressed farmers are engaged in

dry land farming and are not eligible for

high farm loans thereby depend on money

lender. The size of the holding is large

however with very small yield.

Will they get benefited?

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Purpose & Facts

Landless farmers-no loan no waiver

50 percent small & marginal farmers- noloan from banks, largely depends onmoney lender.

Family holding (though appears larger insize, individually very small) are not

benefited in the waiver. Only 5 percent of farmer loan to bank is

overdue - Surjit Bhalla, Economist.

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Lessons to learn

The loan waiver must be seen as a purely

temporary relief.

There will not be any other loan waiver todo remunerative agriculture.

This appears an address to symptoms

leaving disease and its cause untreated.

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Fear

Farmers who have already paid their loan

may take it as punishment of their

honesty.

Farmer may take it granted and stop

repaying the loan.

Banks may slow down on fresh farm loans

as happened in the past and it took almost

10 years to come out of it.

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Popular Vs Anti-popular

The relief estimated to actually distressed

farmers will be equal to the rich farmers in

irrigated areas (due to large low yield and

uneconomic holding).

Not benefited farmers will be more in

number than benefited ones.

This may make loan waiver unpopular.

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Alternatives

Crop Insurance

Cooperative Farming

Participatory loan by banks & otherorganization.

Relief may directly be given by biometric

smart cards or mobile banking systembeing practiced in Bihar.

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THANK YOU