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 2018–19, India’s fiscal deficit may widen to ₹ 1,07,700 crore. During 2016–17, 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 India’s gross domestic product (GDP) in 2016–17 (Kundu 2017). If all the states in India were to waive 50% of their farm debt, it would cost 1% of India’s GDP in 2016–17 price.

Small Farmers and Waivers

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Updated On : 3rd Dec, 2018
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