ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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Are Loan Waivers a Panacea for Rural Distress?

Small and marginal farmers are not the real beneficiaries of loan waivers. In the year following loan waivers, small farmers lose out on three counts: lower access to formal loans, falling agricultural revenue because of higher informal loan costs, and falling agricultural productivity. Instead, supply-side interventions could make a real difference in farmers’ lives as a long-term alternative to loan waivers.

On the eve of Karnataka elections, farm loan waivers were one of the major election promises. Chief Minister H D Kumaraswamy eventually fulfilled his pre-poll assurance and announced farm loan waivers of up to 34,000 crore (with a cap of 2 lakh per family). Starting in 2017 Karnataka is the fifth state (after Uttar Pradesh, Punjab, Maharashtra, and Andhra Pradesh) to have implemented farm loan waiver programmes. Another poll-bound state, Rajasthan announced farm loan waivers, and the main opposition party, Indian National Congress, has promised farm loan waivers in Chhattisgarh if voted to power. As a result of farm loan waivers, there is a likelihood that during fiscal year 201819, Indias fiscal deficit may widen to 1,07,700 crore. During 201617, the total amount of debt relief programmes announced by the governments of Uttar Pradesh, Maharashtra and Punjab amounted to 77,000 crore or 0.5% of Indias gross domestic product (GDP) in 201617 (Kundu 2017). If all the states in India were to waive 50% of their farm debt, it would cost 1% of Indias GDP in 201617 price.

Small Farmers and Waivers

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Published On : 29th Nov, 2018

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