Report: LOAN WAIVERS

Submitted To. Dr. Nisha Bharti

Submitted By: GROUP 3
Name PRN
Abhi Patel 20020242002

Agna Maria Paulose 20020242005

Nishika Gupta 20020242034

Rahul Patel 20020242047

Ram Islam 20020242049

Sanorita Avon 20020242052

Shruti Rawat 20020242060

INTRODUCTION

Loan waiver means the settling of all obligations under debt/ loan through the voluntary action of
the issuing institution. Although, the issuing authority sometimes remains just mere puppets
under the hands of the government.

Debt relief/waiver schemes are used by governments as a quick means to freed farmers from
their indebtedness. The expense and opportunities of such debt relief schemes are widely
debated. Apart from adding to the financial stress of governments who are already under debt
burden, they may work against the borrowing farmers if lending institutions are reluctant to
extend loans to defaulters by the notion that they are likely to default again. The expectation of
the borrowers of such repeated schemes spoils the credit culture among farmers and further farm
lending is constricted.

History: The history of loan waiver in India dates back to the regime of Muhammad-bin-
Tughlaq when a loan scheme called Taccavi loans were extended to the distresses villagers.
However these loans were later waived off by Firoz Shah Tughluq due to worse conditions of the
villagers.

In Independent India, the first nation-wide loan waiver scheme was brought by the VP Singh
government in 1990 where loans of worth 10,000 INR were waived. In the same year, Punjab
Government also waived pans of upto 227.5 crore INR. And definitely RBI was not happy about
it. In 2008, the largest debt waiver scheme was announced in the indian history. Rs 600 billion
across 237 districts reaching 30 million farmers regarding agriculture debt relief. Small and
marginal farmers were completely waived with the land holdings between 1 % 2.5 hectares.
Farmers with land holding above 2.5 hectares were waived 25% more. The scheme was
introduced keeping in view the increasing suicides amongst the farmers .

On July 14th 2014, Telangana and Andhra Pradesh announced a 43000 crores loan waiver
scheme. The scheme was opposed by the RBI and as well as several economists as the
government took this decision in spite of being in severe financial crisis, having a budget deficit
of 16000 crores with no regular schemes. Recent loan waivers with political motivation have
expedite the erosion of the rural credit delivery system.
(https://home.iitk.ac.in/~tanika/files/research/LoanWaiverAT.pdf)

Why to Support Loan Waiver?

Resolve the debt overcharging problem

Reduction of debt burden becomes essential for every enterprise, when the bottom-line shrinks,
that's why the reduction of debt burden becomes inevitable. This is applicable for bothagri and
non agri firms. So it is not only the agriculture sector getting loan waiver which we say it, non
agriculture sector also received debt waivers, they are tactfully termed as “loan restructuring” or
“one-time settlements”.For reviving economy by increasing investment , consumption
government giving them these loan structuring ,so like them farmers also need a reduction of
debt burden, and then followed by fresh infusion of credit, when their is agriculture economic
cycle is on a downturn that maybe because of improper rainfall (because India's most of the land
comes under rainfed area)price crash,(because of bumper production) disease outbreak, these are
the things made The demand for loan waivers in India is absolutely logical when we viewed it
from such a standpoint.(source: Examining farm loan waivers by R. Ramakumar 2019)

Relieves the farmers loan

Loan waiving also helped the farmers who were unable to pay their loans due to charging high
interest rates. Example, Raising the demand at the agricultural grievances meeting chaired by
Collector, M.Govinda Rao Where the farmers thanked the State government for waiving the crop
loans to the tune of ₹12,000 crores disbursed through the cooperative institutions Sundara
Vimalanathan, secretary, Thanjavur District Cauvery Farmers Protection Association also said
that.“The State Government should allocate enough funds in the upcoming State Budget for
repayment of crop loans on behalf of the farmers to the commercial banks.”

Farmer suicides are increasing in Indian

 Around 3 lakh farmers committed suicide in India from 1995 to 2014. As per the agricultutirst
information the number of farmers’ suicide is 10 times higher than the government’s official
report. Scholars and activists supported with a number of evidences for the condition of farmers’
suicides in India. These include high debt burdens, mental health, family problems and
government policies. The table shows the reasons for farmers’ suicide in India.Failure of crops,
Debt burden, price crash, Failure of bore well these are core aspects in agriculture practises. And
these 4 things account for around 23% So we can't forget these unprecedented activities.

Farmers to borrow money from banks instead of unofficial means

Agrarian issues such as fragmented land holding, depleting water table, soil deterioration, hike in
input costs, low productivity along with high dependence on monsoon often lead to poor outputs
for which farmers depends upon credits That is when the vicious circle of loans and indebtedness
begins.Farm loans are loans taken from the banks by the farmers for agriculture requisites and
production. In loan waiver schemes, the Centre/state Government repays the loan to the banks
for the farmers, by using public money collected in the form of taxes.And if the credit is taken
from any other non-institutional sources, they tend to charge bigger interest rates. But if the
farmer has an account in the national banks then there is a chance, farmer may benefit with the
implementation of the Loan waiving scheme for the institutional bodies like nationalized banks.

To gain the trust of the farmers in agriculture

Agriculture in India is not a good career yet. Many Farmers are leaving farming, if they find
alternatives. If the situation continues, there will be severe food scarcity. To prevent the
situation, the government needs to gain the trust of farmers. Farm Loan Waiver does that.
Recently, the AIADMK(All India Anna Dravida Munnetra Kazhagam ) government in Tamil Nadu
announced waiver of Rs 12,110 crore farm loans for 16.43 lakh farmers with the help of
cooperative banks. TN’s loan waiver allotted Rs 73,706 per farmer 12 times more than the
Centre’s annual income support which may be around Rs 6,000. This was a great move from
Tamil Nadu in keeping farmer’s hopes and their trust alive.

AGAINST THE MOTION

 ● Disrupts Credit discipline

Many farmers turn into willful defaulters as they wait for the next loan waiver scheme. For
instance in UP, loan repayment rate fell by 15-25 % after implementation of UP Rin Maafi
Yojana in 2017. This results in an increase in bad loans which becomes a burden on the
economy. Also, a news from rediff business says that farmers generally use the agricultural loans
for various other livelihood purposes than farming. Also, there is no proper check as to where the
loan amount is going.
In the year 1990 India witnessed its first farm loan waiver, due to drought and destroyed crops
congress granted this historic loan waiver to farmers all over India. From 2016 to 2018 six state
governments have declared farm loan waivers of upto Rs1, 19,000 cr.Repeated occurrences of
loan waivers hurt the credit culture within the country. Public sector banks are the worst affected
due to their high exposure to agriculture and farm loans.
Constant occurrence of such populist actions results in risks of impaired credit discipline and
weak risk-reward for banks and reduced credit availability for borrowers.
Banks face extreme stress and the credit system is completely taken aback by the announcement
of this loan waiver. The farm sector non performing assets (NPAs) account for 16% of bank’s
advances under the priority sector lending as of October 2018.Further announcement of farm
loan waivers by the selected government can only worsen things of already beleaguered banks.
Take the case of the depository financial institution of India (SBI), the country’s largest lender.
In UP and Maharastra the NPAs were around 6.4% before the month of June. But according to a
report by Macquarie Research, by September 2018, these NPAs rose to 11% in these states.

● Indirectly punishes loan repayers

According to the latest statistics by RBI 2019 the agricultural loan repayment rate was around
65% which is more than half. This means that intrinsically farmers want to return the debt owed
to the banks. This proves that the mentality is of repayment rather than default.
Let's take the case of Punjab here. In 2017 around the time of rabi crop recovery of farm loans
were adversely hit because the growers were awaiting the implementation of the debt waiver
scheme promised by the Congress-led state government at that time.
About 30 per cent farmers' accounts turned "irregular" within the state and banks were urging the
government to require a fast decision on the matter so as to clear the situation of "uncertainty".
Farmers, even big ones, were also not coming forward to repay their dues. As these accounts
have become irregular, loan recoveries were impacted,against the previous trend, where farmers
earlier used to repay their loan quickly.
Bankers warned borrowers that if their accounts continued to remain "irregular", then they might
not be able to avail benefit of interest subvention scheme and might have to pay a high interest
rate of 11-12 per cent.
At present, the entire agricultural debt in Punjab is pegged at Rs 85,000 crore, of which total loan
to farmers including marginal and little growers was Rs 72,700 crore.
The outstanding debt of small and marginal farmers was Rs 36,000 crore including cooperative
loan of Rs 5,000 crore.
In this situation later the loan was waived off but what about the farmers who had already paid
their installments of a few months, is it fair to them?
Exactly this was reported by TOI in their 2019 report stating that around 28% farmers reported
distress and felt cheated after loan waiver when they had already repaid a huge portion of their
loan.
 ● Bad politics

The policymakers must remove the structural bottlenecks in India’s farm economy. They should
focus on holistic solutions to remove farmer distress and combine creation of non-farm jobs and
enhance opportunities of farm income. Farm loan waiver schemes should not be used as a
political agenda to get the vote banks filled. It is bad politics and these loans are definitely a
burden on the economy.
Loan waiver has been implemented by both Central and State governments equally. Both the
government of BJP and Congress has announced waivers in a total of 11 states, in the year 2014-
18 only which overall accounted for more than a trillion rupees. In the current election also,
political parties started promising a farm loan waiver in their manifesto.
In december when elections were announced in the states of Madhya Pradesh, Chhattisgarh and
Rajasthan, the congress led government announced loan waivers which ultimately resulted in the
defeat of BJP..
This proves that Loan waivers are just a tool for politicians to gain vote banks in all elections and
prevent them from coming up with the long lasting solution.

● Banks implementing Stricter rules

What follows after loan waiver is a debt trap cycle.

As soon as loan waivers are announced all the burden falls on these banks who have already
lended to farmers and have to wait years to get the disbursement from the government, This
makes them wary. Now when a farmer whose debt was waived off the previous year comes to
take a loan again the banks makes the process of loan availment difficult. As due to government
terms they cannot refuse the loan to farmers they try to make the process very long and tiring. As
reported by The Economic Times farmers especially small and marginal reported the total loan
availment period to be of 2-4 months which previously was 1-1.5 month only after loan waivers.
While around 61% farmers state that the process becomes really difficult to take loans in case of
loan collapse.
Now in this case what does a farmer do? He then turns to these moneylenders who give them
loans on very high interest rates, essentially trapping them.

● Actual amount disbursed is much lower

If you look into the report provided by RBI named as Report of the Internal Working Group to
Review Agricultural Credit ,you will see that the amount of waiver is staggered. Cumulatively
for all states, the share of farm loan waivers in total state governments’ expenditure has seen a
big rise in 2017-18 and 2018-19 (Table 3.2). This could potentially depress the state
governments’ cost in agriculture. These variations of budgetary provisions to meet the
expenditure towards the announced loan waivers result in an increase in NPA(Non Performing
asset) levels.
THE report highlighted the varying fiscal impact of loan waivers across different
states.Therefore, there is a difference between announcement and actual outlay. The political
leadership should be refraining from announcing such waivers rather than instruct the banks to
streamline their agricultural credit policies stringently.

(by adopting multiple measures such as extension of loan repayment tenures, rationalizing terms
of repayments, cutting the margins and rate of interests.)

● Is a tool for rich farmers

The loan waiver scheme is also an unethical practice. Honest farmers who believe in repaying
their loans in time are at a disadvantage compared to habitual loan defaulters who benefit from
such schemes. It has also been seen that farm loans exceed the worth of the crops. Dishonest
cultivators enjoy this practice of taking loans as they know that ultimately their loan are going to
be waived. The farming community deserves the simplest , because it is that this community that
feeds the state and that they must work against all odds. But a few of them plan their loan taking
activities to create windfall profits because of loan waiver schemes which routinely keep on
coming with elections.

Conclusion:
In our view, while we felt that loan waiver was a noble initiative with a noble aim but the
continuous intervention of political parties, trying to make the vote banks out of loan waivers is
benefitting no one but them and adding to the woes of the farmers and the banks alike. So a
couple of measures of Improvement so as to curb the NPAs and put an end to the death cycle is
as follows.
Measures for Improvement
1. Reducing costs:
● Establishing the nation-wide soil health card scheme, neem-coated urea is a
crucial aspect because it will reduce the usage of fertilizers and enhance nitrogen
use efficiency.
● Direct cash transfer may be a better option than debt relief to incentivise the
farmer and enable them to satisfy pre-operative expenses – and is proactive
instead of reactive in nature.

2. Generating employment opportunities

● The Situation Assessment of India reported that quite 40 percent of farmers would really
like to quit agriculture if alternative opportunities were available.
● Emphasis on the development of water bodies, fisheries and livestocks should be given
by the government with the current farming activities too. E.g: The Rashtriya Gokul
Mission. This will benefit tons of small and marginal farmers, including landless
agriculture labourers who possess these indigenous species.
● Investment in agriculture and therefore the allied sector will help employed generation.
The government in budget 2019 also said that it will invest in a big way in developing
infrastructure in both agriculture and allied farm sectors, and encourage private
entrepreneurs in food processing.

3. Reducing risks in agriculture

● Due to pests, natural calamity and risks insurance coverage should be provided to the
farmers on the notified crops. Pradhan Mantri Fasal Bima Yojana is a good start but it
should be implemented carefully and all the issues must be resolved soon.
● Modern farming techniques and innovative approaches should be provided to the farmers.
● Flow of credit in the agricultural sector should be continuous and uniform.

4. Developing agri-infrastructure
● There are not any proper warehousing facilities which force the farmers to sell the
produce at the prevailing low prices. So providing enough storage facilities, irrigation
facilities, electricity should be the main target .
● PM Kisan SAMPADA Yojana may be a comprehensive package which can end in the
creation of recent infrastructure with efficient supply chain management from farm gate
to retail outlet. It will not only provide an enormous boost to the expansion of food
processing sector within the country but also help in providing better returns to farmers
and is a big step towards doubling of farmers income, creating huge employment
opportunities especially within the rural areas, reducing wastage of agricultural produce,
increasing the processing level and enhancing the export of processed foods.

5. Improving the quality of rural life

● Rural India remains missing basic amenities (including sanitation, hygiene, beverage ,
drainage, schooling, and health centres).
● UBI and Farm distress: Unlike farm loan waivers, universal basic income doesn't impair
credit culture and, unlike farmer-specific transfers, doesn't seek to tie down people to
farming. Compared to a farmer-centric scheme, universal basic income holds greater
appeal because it doesn't discriminate against supported occupation or land ownership,
and doesn't depend upon the accuracy of targeting to work. But the challenge with
universal basic income is the prohibitive costs related to it.
6. Market Reforms
● Amendments in APMC Acts: APMC Act should be amended to permit for marketing and
therefore the establishment of agricultural markets by the private and cooperative sector
to supply more efficient marketing and creating an environment conducive to non-public
investment.
 ● Appointment of an agricultural commission consisting of all stakeholders to seem
comprehensively into all aspects of farming.
● Farmers should be grouped in farmers producer organisations so that they have better
felicitation of all the facilities.
● Commodity options (rights to shop for or sell) in agricultural products can protect the
farmers from the vagaries of distress sale during the periods of bumper harvests.
● E-NAM portal should be utilized to its full potential.

7. Land Consolidation
● Another major issue relates to the shrinking size of farms which is additionally
liable for low incomes and farmers’ distress. Thus, the viability of marginal and
little farmers may be a major challenge for Indian agriculture. We need to possess
policies for land consolidation alongside exploitation activities so as to tackle the
challenge of the low average size of holdings.’
● Digital India Land Record modernisation programme: the most aims of DILRMP
are to inaugurate a system of updated land records, automated and automatic
mutation, integration between textual and spatial records, inter-connectivity
between revenue and registration, to exchange this deeds registration and
presumptive title system thereupon of conclusive titling with title guarantee.
● Model Agricultural Land Leasing Act, 2016: It Legalises land leasing to market
agricultural efficiency, equity and power reduction.

While loan waiver schemes are like a helping hand , it also demands urgent policy attention.
Unless there are steps ‘to raise productivity, reduce costs of cultivation by providing quality
inputs at subsidised rates, provide remunerative prices following the recommendations of the
Swaminathan Commission, farmers should be provided with better facilities and technology to
improve the productivity, predict the bad weather, etc. farmers are lifeline of our nation and
when devising the policies a long term approach for the betterment of their lives should be taken
into account. Loan waiver is a short term solution at its best and honestly not a healthy one too.
A balanced approach should be adopted by both our government and the people of our nation
too.

“HEALTHY FARMERS, HEALTHY NATION”

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