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Dispelling doubts on waiver

The funding package announced by Finance Minister P. Chidambaram though belated should go a long way in dispelling doubts over the United Progressive Alliance government’s showpiece farm loan waiver programme that is going to be one of the main planks for the forthcoming general election. The Rs.60,314 crore scheme providing for the complete waiver of loans for small and marginal farmers and a 25 per cent waiver as part of a one-time settlement for other farmers is a welcome measure to relieve some part of the distress in the agricultural sector. Yet apart from those worried over the moral hazard and the weakening of the banking system that a loan write-off would involve, there were sceptics who pointed to the lack of any provision for the scheme in the budget. Concerns that the banks would be forced to bear some part of the burden were addressed quickly by the Finance Minister’s announcement soon after the budget that they would be provided enough liquidity and that their balance sheets would in fact be strengthened. This was followed by the Prime Minister’s announcement that the waiver would be funded fully through tax and non-tax sources. Then came the supplementary demand for Rs.10,000 crore in Parliament, and at last the clarification the Centre would fund it from tax buoyancy and non-tax sources and, if unavoidable, through borrowing.

Much of the criticism of the scheme, particularly from the Opposition, relates to what it does not do — that it is no substitute for the large investments needed in agricultural infrastructure. There are, however, two issues that have to be addressed if the scheme is to be effective on the ground. The first relates to equity. The blanket ceiling of two hectares for full loan waiver would obviously be unfair as the productivity of land and the incomes of farmers from two hectares can vary widely depending, for instance, on whether the land is irrigated or rain-fed. Land ceiling laws across States routinely make this distinction and allow larger holdings in the case of dry lands, and the waiver scheme would also need to make a similar differentiation. The second issue, as pointed out by the renowned agricultural scientist, Dr. M.S. Swaminathan, is that if the waiver is to have a lasting impact and secure farmers’ livelihoods into the future follow-up measures would be needed. These would include a mechanism to improve the access of small and marginal farmers to better inputs including irrigation, crop varieties and seeds on the one hand, and on the other, minimum support prices for produce other than rice and wheat to prevent distress sales. The opportunity the loan waiver offers for a more lasting relief of rural distress ought not to be lost.

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