Farm loan waiver - Reasons, rationale, impacts and alternatives

Farm loan waiver.. Why farmers are demanding? Is this demand of farmers beneficial for them? If not then what should be a proper demand?
Let’s discuss. Figure no. 1 shows the percentage share debt of cultivator household. It is increasing continuously. In 2004, there were 50% indebted farmer households in whole India (figure no. 2).

Figure no.1 

Figure no. 2

Current numbers are very bad. About 52 percent of the agricultural households in the country were estimated to be indebted in 2012-13. Andhra Pradesh (92.9 %), Telengana (89.1 %) and Tamil Nadu (82.5 %) are suffering from worst condition. 60% of total loans were institutional which were linked to government (2.1%), co-operative society (14.8%) and banks (42.9%) (situation assessment survey of agricultural households 2012-13). So with this high number, given demand is obvious.

Figure no. 3

Now figure no.3 shows that the cost of cultivation and production of major crops in major states in India is continuously increasing. But the income is not increasing with that trend (situation assessment survey of agricultural households 2012-13). So burden on farmer is increasing.

Figure no. 4

The value added in agriculture sector is declining and the number of employed person per number of agricultural population is very low (figure no. 4). Therefore the anger in agricultural sector is obvious. But is this demand beneficial for them? We know that in 2008, massive Rs 76,000 crore farm debt waiver announced by the government. But it didn’t help to improve the condition in given sector. We saw that the cost is increasing continuously even after 2008 and returns on that commodity is not increasing. It means productivity in given sector is still low. With that the gross capital formation in given sector is declining while public GCF is very low and private GCF is not improving (even after 2008) (figure no. 5).

Figure no, 5

It means that the given policy didn’t help to increase the investment in agriculture. Certain studies have also shown that the credit has ambiguous impact on agriculture growth. The farmers who were able to reply, they also tried to take benefit of that announcement which created more problems in banking system. So then what should be a proper demand? I think in agricultural sector, the main problem is in marketing system. The regulations in given sectors are restricting farmers from taking the benefits of the international markets or simply global agricultural market.

Figure no. 6
Source - department of agriculture and cooperation 

Figure no. 6 shows that the regulated markets are spending more on administration and salaries, not on infrastructure and productivity. So these expenses are not productive. With these markets are not helping to minimize the post-harvest losses (figure no. 7). Figure no. 8 shows that the MSP is very low compare to international prices (I have used import value and export value for international prices). So if farmers are allowed to take part in international market, then they will get more profit.

Figure no. 7
Source - Final Report of Committee of State Ministers

Figure no. 8
Source - World bank and agriculture ministry

In given situation, the charges in APMCs which are paid by farmers are also (fig. no. 9). So the realization of the prices of agricultural commodities for farmer is very low.

Figure no. 9
Source - price policy report on Rabi crops. 

So farmers should demand a reform in marketing system. They are producing enough, they are incurring more cost but they are not getting enough returns on that. That’s why they are facing more trouble. So instead farmer should demand direct money transfers so that they will increase their investment in agriculture and even they can minimize the cost on input. So waiving loans is not beneficial in long run. The charges or cost in marketing should be minimized. But it is true that the farmers are facing some dangerous problems. There are some alternative solutions which government should use.


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