[Editorial Analysis] For the Indian farmer, Santa Claus came early this year

Mains Paper 3: Economy

Prelims level: NPAs

Mains level: Farmer’s loan waivers and possible impacts on the economy

Context

• There are many problems with loan waivers, but the most important is that they cannot fix the cause of the agricultural crisis.

• Santa Claus came early this year with Congress promising the waiver of farm loans worth ₹62,000 crore in the states where it won assembly elections recently.

• The plight of farmers is similar loan waivers will neither increase farmer productivity nor help them escape poverty.

• It only provides some immediate relief while postponing the resolution of the real problem.

• The way Santa rewards good kids, political parties are rewarding constituents. And the hardworking elves for this gift are none other than taxpayers.

Problem with load waivers

• There are many problems with loan waivers, but the most important is that they cannot fix the cause of the agricultural crisis.

• In my last column in this space on 11 December, I detailed the six regulatory shackles keeping farmers in poverty.

• First, farmers are denied access to regional and global markets and, therefore, better prices because they are restricted from selling to specific mandis operated by licensed middlemen.

• Second, the government promises artificially high minimum support prices, incentivizing farmers to increase production, and then fails to deliver those prices, forcing farmers to dump their produce at throwaway prices.

• Third, farmers are not allowed to sell their land to non-farmers or easily convert their land to non-farm use, which denies the exit option for low-productivity farmers.

• Fourth, poor land titling systems increase uncertainty depressing land markets and prices.

• Five, markets for agricultural inputs are severely controlled, which leads to a culture of freebies and input subsidies.

• And six, the ban on importing the latest agricultural technology is depressing agricultural productivity and innovation.

• These policies are the real cause of the agrarian crisis of poverty—and providing loan waivers does not resolve even one of them.

• Loan waivers are a band-aid trying to mask a case of terminal cancer.

NPA problem

• Instead, loan waivers create perverse incentives and many unintended consequences.

• Expecting loan waivers, farm loans defaults and non-performing assets (NPAs) begin to rise, and the more farmers who default their loans, the more likely they are to be forgiven.

• The benefits from waivers are also usually captured by richer farmers.

• And since agricultural loan growth has been very slow because of NPAs and defaults, the truly marginalized farmer is pushed into the hands of local moneylenders charging high-interest rates.

• The biggest problem, of course, is that loan waivers are disastrous for the fiscal health of state governments, and given the scale of the new waiver promises, even the Union government.

• With rising deficits and lagging growth, there are fears of some long-term fiscal consequences.

Role of ECI

• These reasons have prompted Raghuram Rajan to approach the Election Commission to take farm waivers off party manifestos and election promises a problematic quick-fix.

• To begin with, all freebies given by governments are not referenced in manifestos and there are plenty of ways to remove loan waivers from manifestos while executing them once the government is formed.

• Second, this is a severe restriction on free speech in a democracy. And third, it would set a terrible precedent.

• This is a technocratic solution that attempts to eliminate a symptom relief. If doctors are providing band aids to cure cancer, this is an attempt to ban band aids.

Way forward

• Without meaningful reform providing access to markets, farmers will face grave and recurring crises.

• The economists of all stripes have sent warning signals of the fiscal crisis because of loan waivers.

• The political and economic incentives will lead to more election pandering by politicians and competition for freebies instead of reforming agriculture, which means Santa will likely visit every year.

• Unfortunately, even though Santa came early, Indian farmers will not jingle all the way to the bank.

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Prelims Questions:

Q.1) The Prime Minister’s High-Level Committee, popularly known as Sachar Committee was set up with a focus on

a) Curbing violence and discrimination against Dalits

b) Blockades in the social and economic development of Women in India and means to empower them

c) Social, economic, and educational conditions of the Muslim community of India

d) Creating social harmony between the people of North-eastern India and the rest of India

Correct Answer: C

Mains Questions:

Q.1) If promising loan waivers is off the table, can communist technocrats lobby the Election Commission to take economic liberalization off manifesto promises in the future?

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