An outstanding alternative to farm loan waiver

Helping farmers to manage their unviable debt is definitely not a

moral hazard, as has been advocated in some quarters.

The world is no stranger to farm debt crises like the one India is
seeing today. Back in the 1980s, the Canadian parliament enacted a
law to stop foreclosures on farm debt, after prices collapsed and
interest rates jumped to as high as 24%.

The law was in force for a dozen-odd years. It identified insolvent

farmers, facilitated agreements between the borrowers and lenders,
and helped some farmers move into other professions as a long-term
solution.

Farming is structured differently in India and employs way more

people than in developed nations. Giving up farming is rarely an
option for a farmer — unless he is economically forced to migrate.
Solutions in India, too, will need to develop locally.

Loan waivers affect only bank loans, leaving aside the non-banking
finance companies (NBFCs) that also lend in rural areas for buying
farming equipment. The NBFCs often restructure loans taken by
farmers who are unable to repay. Banks also have similar tools in
their kitty to deal with debt defaults. They have used these for ages
to restructure corporate loans.

So, why not apply some to agri-loans too? Consider the ‘funded
loan’, which defers interest and repayments for a year, adding the
first year’s interest to the principal. It will mean adding Rs32,000
crore to the Rs 4 lakh crore, deferring repayments by one year —
effectively pushing the problem away by a year and buying time. It
will remove the immediate cause for distress. New repayment
schedules for the current loans will need to be stretched over five, or
even 10, years.
An outstanding alternative to farm loan waiver

This ‘restructuring’ will also allow the farmer to take a loan for his
next crop, and then start repaying both loans together. They will h ..