18106B1042 Prafull Korde Functional Project

A STUDY ON AGRICULTURAL LOAN WAIVER
SCHEME BY MAHARASHTRA GOVERNMENT
Submitted By
Korde Prafull Prakash
UNDER THE GUIDANCE OF
Prof. Varsha Maheshwari
A PROJECT SUBMITTED IN PARTIAL FULFILMENT OF

MMS TO
VIDYALANKAR INSTITUTE OF TECHNOLOGY
Wadala (East), Mumbai 400 037
MAY 2020
A STUDY ON AGRICULTURAL LOAN WAIVER
SCHEME BY MAHARASHTRA GOVERNMENT
Submitted By
UNDER THE GUIDANCE OF
A PROJECT SUBMITTED IN PARTIAL FULFILMENT OF

MMS TO
VIDYALANKAR INSTITUTE OF TECHNOLOGY
Wadala (East), Mumbai 400 037
MAY 2020
Signature of Faculty Guide Head of Department

DECLARATION
This is to declare that the study presented by me to Vidyalankar Institute of Technology,

in completion of the Master in Management Studies (MMS) under the “A study on
agricultural loan waiver scheme by Maharashtra Government” has been
accomplished under the guidance of Prof. Varsha Maheshwari.
Date:-
Place:- Mumbai Korde Prafull Prakash

Master of Management Studies Department
Vidyalankar Institute of Technology, Mumbai-400037
CERTIFICATE
This is to certify that the dissertation entitled “A Study on Agricultural Loan
waiver scheme by Maharashtra Government” is a bona fide work carried out
by Mr. Prafull Prakash Korde in the Master of Management Studies Department of
Vidyalankar Institute of Technology, Mumbai and is submitted in partial
fulfillment of the requirements for the award of the degree of Master of
Management Studies in Finanace.

Associate Professor
Department of Management Studies
Vidyalankar Institute of Technology, Mumbai
Forwarded by:
Dr. Amit Oak
Professor and Head
Department of Management Studies

Vidyalankar Institute of Technology, Mumbai
Date:
ACKNOWLEDGEMENT
My project on A study on agricultural loan waiver scheme by Maharashtra

Government has been a great learning experience. I was exposed to the different areas
of research in social relevance and gained valuable experience, which I will always
recall with a sense of satisfaction and pride.
This is to acknowledge Prof. Varsha Maheshwari under whose guidance I have been
able to successfully complete this project and effectively come to a very successful
conclusion.
A greater share of inputs and data from Mr. Prakash Korde, Br. Manager, ADCC
Bank Ltd. made this project report possible to its rightful accuracy.
To all my colleagues who have helped me either directly or indirectly, I am grateful for
their valuable inputs. This project would not have been possible without their help.

INDEX
Sr. No. Name of the Chapter Page No.

1.0 Abstract 1
2.0 Introduction 2
2.1 History 5
3.0 Objectives 13
4.0 Literature Review 14
5.0 Methodology of Study 16

16
5.1 Time period of study
5.2 Primary Data 16
5.3 Co- operative Data
17
5.4 Discussion on findings 20
22
5.5 Field survey findings
6.0 Conclusion 26
7.0 Reference 27
8.0 Annexure 28
A Study on Agricultural loan waiver scheme by Maharashtra Government
1.0 Abstract
This project examines the impact and implications of Maharashtra
Government’s agricultural loan waiver scheme of 2017, based on data collected through
a field survey of a villages of Ahmednagar District as well as farm loan transactions
data obtained from select primary agricultural co-operative credit societies. The state
government’s loan waiver scheme was applicable only to agricultural loans availed by
small and marginal farmers, while other farmers with land holdings of above 5 acres
were not eligible for the waiver benefit. However, the differentiation in post-waiver
access to credit to the beneficiary farmer and the non-beneficiary farmer comes down
as the supply of funds for agricultural loans normalises. Second, to explore the creation
of a distress fund that will cushion state finances, should there be a need for debt
waivers.
Vidyalankar Institute of Technology,Wadala

1
2.0 Introduction
A loan waiver is the waiving of the real or potential liability of the person or
party who has taken out a loan through the voluntary action of the person or party who
has made the loan. Examples of loan waivers include the Stafford Loan Forgiveness
program in the United States and the Agricultural Debt Waiver and Debt Relief Scheme
in India.
Loan waivers for loans taken by farmers are unique to India. Economists have
generally regarded this to be a populist and fiscally risky measure that can cause long
term problems. The Loan Waivers can constitute a significant fraction of the GDP.
In the past decade, farm loan waivers have become a policy instrument to
alleviate the financial distress of farmers. Despite agreement on the theoretical rationale
for such debt forgiveness and its deep contextual relevance, many fears that in the long
run, loan waivers might vitiate the repayment culture in the farm sector and undermine
the financial status of banks. At present, critiques of large-scale loan waivers rest on
limited evidence. This project reviews and synthesizes existing research and available
data on the implications of loan waivers, especially for the flow of credit to farmers

2
from banks. On most of the issues, such as farmer well-being and repayment culture,
there seems to be mixed evidence on the consequences of debt waivers. Credible
evidence on macroeconomic implications is limited, mainly on account of
methodological challenges. This project concludes that even if loan waivers are an
inappropriate strategy to support farm incomes in sustainable ways, the wide-ranging
negative impacts on the formal banking sector are perhaps overstated. A more fruitful
approach would be to focus on whether loan waivers can be designed to reduce the
possible negative consequences for the formal banking system as well as for
macroeconomic system. The project identifies three possible instruments—loan
insurance products that will help banks cope with the consequences of large-scale
defaults. Second, to explore the creation of a distress fund that will cushion state
finances, should there be a need for debt waivers. Third, it would be useful to consider
the operation of debt relief commissions to have an ongoing process for debt waivers.
Since April 2019, there has been a spate of announcements by different state
governments in India on waiving farm loans for indebted farmers. The current wave of
loan waivers is regarded as populist as well as an implicit acknowledgement of the
pervasive farm distress cumulating over the past 2 years. It appears that farm loan
waivers as a policy lever are here to stay. Although originally intended as a one-off
instrument a solution to an exceptional circumstance the past decade has seen loan
waivers become a routine instrument in supporting the agricultural sector. This is, in
part, because the deep structural constraints of Indian agriculture remain unaddressed
and, in part, because there have been several weather-related shocks in large parts of
the country in recent years. In this context, it is important to assess the implications of
loan waivers for the credit ecosystem. There is an acknowledgement today that given
the extent of farm distress and the somewhat limited options available in the short run,
loan waivers are justifiable in the interests of farmer welfare and some even contend
that it does not go far enough; at the same time, loan waivers are deemed to have several
associated problems and limitations that provoke a pause. Indeed, there is a popular
perception that debt waiver is often used as an instrument of political economy, to
appease various interest groups and serve limited purpose, doing more harm than good.
This project offers a synthesis of existing evidence and a narrative review of existing
debates, with a special focus on understanding the implications of loan waivers on the
flow of credit to farmers, especially from the banking sector.
3
The first nation-wide farm loan waiver was implemented in 1990 by Janata Party
government led by then Prime Minister V.P. Singh and cost the government Rs 10,000
crores. A number of agitations by farmers have been held demanding loan waivers, and
the political parties have capitulated or competed by announcing Loan waivers for
farmers.
2.1 HISTORY OF FARM LOAN WAIVERS IN INDIA
Farm loan waivers, as we know them today, emerged in the past decade.
However, the first farm loan waiver goes back to the late 1980s and indeed as some
would argue were a feature of the colonial era as well (see Table 1 for a history;). In
the early years, the waivers were somewhat restricted in scale and scope, as with the
interest waivers in Tamil Nadu in 1996, the purview of these waivers have expanded in
recent years. Furthermore, reflecting perhaps the increasing challenges faced by the
agricultural sector, they have become more frequent with states taking the lead in
announcing these waivers.
The government and several other states have announced the Agricultural loan
waiver scheme to tackle the problem of debtness of farmers due to the drought and
heavy rain. So, few are the loan waiver scheme discussed below.
Table 1: Selected History of Loan Waivers
Amount
State Month/Year (INR Salient Features
Million)
Haryana 1987 2275.1 Cooperative bank loans under 20,000

Up to ₹10,000 for each borrower, public
Central 1990 100000
sector and regional rural banks, as on 2
Government
October 1989
Tamil Nadu 1996 200 Interest waiver of 3 per cent
Tamil Nadu 2004 610.5 Interest waiver of 3 per cent

4
Kerala 2006 Kerala Farmers’ Debt Relief

Commission came into force in 2007
Tamil Nadu 2006 68660 Loans from cooperative banks
Central 2008 522598.6 Agriculture Debt Waiver and Relief

Scheme (ADWDRS) Under the scheme,
Government
direct agricultural loans disbursed by
scheduled commercial banks, local area
banks, cooperative credit institutions and
regional rural banks between 1 April
1997 and 31 March 2007 to farmers,
which were overdue as on 31 December
2007 and remained unpaid up to 29
February 2008 were eligible for debt
waiver/debt relief. While ‘small and
marginal farmers’ were entitled to 100
per cent debt waiver, ‘Other Farmers’
were given a rebate of 25 per cent of the
eligible amount, subject to the condition
that the farmer pays the balance, that is,
75 per cent. As many as 37.3 million
farmers were benefitted to the extent of ₹
522,598.6 million.
Up to a maximum of ₹25,000, for farmers
Karnataka Aug 2012 35000
with loans from cooperative societies.
The waiver applies to loans taken
between 1 August 2011 and 25 July 2012
90000 farmers with loans between 1991
Chhattisgarh 2012
and 1997
Farmers who had taken loans of up to
Uttar Pradesh Nov 2012 16500
₹50,000 from Uttar Pradesh Cooperative
Rural Development Bank and had repaid

5
10 per cent of the principal amount till 31

March
2012.
Andhra Pradesh Government announced
Andhra Aug 2014 430000
waiver of agriculture crop loan to farmers
Pradesh
vide government order (GO) dated
02.08.2014, benefitting 8 million farmers
(Telangana was formed in June 2014)
The Telangana Government announced
Telangana Aug 2014 170000
debt waiver for farmers vide GO dated 13
August 2014
Chhattisgarh Government announced
Chhattisgarh Dec 2015 61000
debt relief/waiver vide notification dated
26 December 2015.
Government of Tamil Nadu, vide GO
Tamil Nadu May 2016 60410
dated 23 May 2016, announced a loan
waiver scheme for small & marginal
farmers, impacting 1.202 million
farmers. Its waived crop loans, medium-
term and long-term agricultural loans
availed by small and marginal farmers
which were outstanding in the books of
co-operative societies as on 31 March
2016. Farmers with land holdings above
2 hectares were not eligible.
Uttar Pradesh Government issued
Uttar Pradesh Jun 2017 363590
scheme guidelines relating to redemption
of crop loan debt of small and marginal
farmers vide letter dated 24 June 2017.
Up to ₹0.1
millions of crop loans for small and
marginal farmers.

6
Jammu & Kashmir Government declared

Jammu & Jan 2017 2447
debt waiver scheme vide GO dated 23
Kashmir
January 2017, impacting 0.115 million
farmers.
The Maharashtra Government
Maharashtra Jun 2017 340220
announced debt waiver for farmers vide
Government Resolution dated 28 June
2017, and 3.1 million farmers received up
to ₹0.15 million
waiver each, for crop loans
The Government of Karnataka
Karnataka Jun 2017 81650
announced loan waiver scheme vide GO
dated 23 June 2017 affecting 2.2 million
farmers. Only crop loans from co-
operative banks of amount up to ₹50,000
Punjab Government announced debt
Punjab Oct 2017 100000
waiver vide Notification dated 17
October 2017. impacting 1 million
farmers. Up to ₹0.2 million for small &
marginal and flat ₹0.2 million for loans
above ₹0.2 millions
The total outstanding short-term loan till
Rajasthan Dec 2018 180000
30 November 2018 from Central
Cooperative Banks (CCBS) was waived,
benefitting around 2.8 million farmers.
Further, short-term
loans till 30 November 2018 and up to
₹0.2 million has been waived of the
defaulters, who have taken loan from
scheduled, nationalized or regional rural
banks. This latter will benefit around 1.2
million farmers additionally.

7
Loans below ₹0.2 million for government

Madhya Dec 2018 360000
registered farmers who have taken loan
Pradesh
from national and co-operative banks till
31 March 2018.
25 per cent loan of farmers up to a
Assam Dec 2018 6000
maximum of ₹25,000 of all farm loans,
taken via KCC from public sector banks
Note: For earlier years, data has been compiled from newspaper reports and might not be an
exhaustive list; the amounts are approximate.
Agriculture Debt Waiver and Debt Relief Scheme, 2008
The Government of India announced the ADWDRS, 2008 in the Union Budget
for 2008–09. The scheme sought to mitigate the distress of the farming community in
general, and small and marginal farmers in particular, to de-clog institutional credit
channels, to catalyse flow of credit to agriculture and to enhance agricultural production
and productivity. The scheme covered direct agricultural loans disbursed by
commercial banks and co-operative societies between March 31, 1997 and March 31,
2007 which were overdue as on December 31, 2007 and remained unpaid until February
29, 2008. The scheme made a distinction between loans taken by small and marginal
farmers and other farmers. With respect to small and marginal farmers, the scheme
covered their short-term production loans (subject to a ceiling in respect of plantation
and horticulture) and installments of investment loans which were overdue. However,
in the case of other farmers, the scheme provided for a one-time settlement, under which
a rebate of 25 per cent of the eligible amount was given on the condition that the farmer
repaid the balance 75 per cent in three instalments. Out of the total beneficiary farmers
of 1.76 million in Maharashtra, 1.43 million small and marginal farmers were given a
debt waiver and 0.33 million other famers were given debt relief (GoI, 2014).
Maharashtra accounted for 5.2 per cent of the total amount provided by GoI as debt
waiver/relief and 4.8 per cent in terms of the number of beneficiary farmers under the
scheme. Out of the total outstanding debt of ₹33.5 billion waived off for small and
marginal farmers in Tamil Nadu, only ₹1.25 billion constituted the outstanding debt

8
from co-operative institutions. Debt relief for other farmers who had borrowed from
co-operative institutions in the state amounted to ₹0.18 billion.
Debt Relief to farmers under Chhatrapati Shivaji Maharaj Shetkari Sanman

Yojana -2017
To improve the sorry state of the farmers in the state of Maharashtra, the state
government has decided to lessen the burden of the agricultural workers by providing
a loan waiver. The scheme is known as the Chhatrapati Shivaji Maharaj Shetkari
Sanman Yojana or the Maharashtra Farmer Loan Waivers Yojana . The scheme will
be available to selected farmers only.
Launch details of the scheme

The official announcement of the Maharashtra Farmer Loan Waivers Yojana
was announced by the Chief Minister of Maharashtra, Mr. Devendra Fadnavis in 2017.
The actual date of implementation of the scheme is 31st of October, 2017.
Key features of the scheme

1. Waiver up to 1.5 lakhs – For assisting the agricultural workers of the state, the
state authority has announced that relinquishment of 1.5 lakhs will be made on
agricultural credits, taken by the farmers, irrespective of their total loan amount.
2. Return benefits under the scheme – It has been highlighted in the scheme that
all those agricultural workers who have paid the interest and installments on a
regular basis will be awarded 25% of the total credit as a cash return.
3. Contribution by MLAs – The agricultural credit waiver will cause a dent in the
coffers of the state government. To fund the implementation of the scheme, all
MLAs will donate their salary of one month towards the cause.
4. Number of beneficiaries under the scheme – According to the reports, after
implementation, the scheme will assist around 89 lakh farmers in getting relief
from the credit burden. It also included 40 lakh agriculturalists.
Eligibility criteria for the scheme

9
1. Residents of Maharashtra – Like many other states, the CSMSS Yojana has
been designed for the benefit of the farmers who are residents of the state of
Maharashtra.
2. Small to medium holdings – The scheme will only include the farmers who fall
in the small to medium category. It means that all the farmers who have a loan
and do not have a farm that measures more than 5 acres will be allowed to
partake in the program.
3. Regular installment paying farmers – As per the rules highlighted in the scheme,
only those farmers who have been paying their installments on a regular basis
and have no defaulted will get the full benefit of the program.
Mahatma Jyotirao Phule Karz Mafi Yojana- 2019
The one announced by chief minister Uddhav Thackeray this time and one
introduced by the previous government which hasn’t yet been fully implemented. The
government resolution (GR) for the current scheme Mahatma Jyotirao Phule Karz
Mafi Yojana was issued on December 27th , 2019. Work on the previous Chhatrapati
Shivaji Maharaj Shetkari Sanman Yojana also continues.The Maharashtra government
has launched a loan waiver scheme for the farmers of the state. Maharashtra
government announced the farm loan waiver scheme for the development of the farmers
of the Maharashtra state. The loan was given through an online portal which was
launched by the concerned authorities of the Maharashtra government.
The Maharashtra government on kickstarted the much-anticipated farm loan

waiver scheme by releasing the first list of beneficiaries under the Mahatma Jyotirao
Phule Shetkari Karjmukti Yojana, containing names of 15,358 farmers. Chief Minister
Uddhav Thackeray announced the list of MJPSKY for 68 villages in the presence of
Deputy Chief Minister Ajit Pawar and other ministers, leaders and officials.
While the second list of another 100,000 beneficiaries will be released on

February 28, the entire scheme The government has collected the bank account details
of nearly 35,00,000 farmers for the loan waiver up to Rs 200,000 and the beneficiaries
shall be issued certificates. They have selected two villages from every district to test
the efficiency of our system through which the entire crop loan waiver scheme will be

10
implemented. The money will be transferred directly into the loan accounts of the
farmers.
Thackeray had announced the MJPSKY scheme last December for which the
state government on Monday tabled a list of supplementary demands of Rs 24,000 crore
for 2019-2020, including Rs 15,000 crore towards the farm loan waiver scheme.
Key features of the scheme
1. Agricultural development in the state – The new scheme will not only
help the agricultural workers, but will boost them to work towards bettering
the agricultural practices. It will ensure the progress of the agricultural sector.
2. Lessening the financial burdens of farmers – Another objective of the
state government is to ensure that the needy farmers do not face any financial
pressures, while repaying the agricultural loans.
3. Loan waiver amount – The state authority has promised that every
beneficiary will attain the loan waiver up to Rs. 2 lakhs.
4. Details of crops – Earlier, the state government has loan waivers scheme,
which included selected few crops. However, the implementation of this
project will eliminate these issues. The state government highlighted that all
eligible farmers will be able to partake in this project; irrespective of the crops
they grow.
5. Fast and easy application – The farmers, living in the rural areas, find the
online registration process challenging. Thus, the state government has
selected the traditional offline registration mode. As the banks will be able to
process the applications, the scheme implementation will be easy and fast.
Eligibility for the applicants
1. Only for Maharashtra residents – The farmers must be permanent and

legal inhabitants of this state to apply for this credit waiver scheme.
2. Only for agricultural workers – It has been pointed out in the scheme draft
that those candidates, who depend on farming as their occupation, can register
for this loan waiver project.

11
3. BPL applicants – If the farmer come under the BPL category, then he will
be able to obtain the financial benefits.
4. Loan application requirements – Only those applicants will be selected to
attain the loan waiver benefits, who had applied for the farming credit from 1
March.
5.Targeted towards needy farmers – Though the state Chief Minister has
ensured that the all farmers can apply for this scheme, he pointed out that stress
will be given on the selecting those, who come under marginal and small
farmer categories.

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3.0 Objectives
The clear objective of this project is to
1) Study the farmer behavior pattern towards the loan waiver scheme
2) Collect all the information from the farmers regarding their loan structure
3) Study the difference before and post loan waiver scheme
Objective of this project is make a hypothesis which proves that Why is agricultural
loan default low despite farmers facing financial stress and what are the sources of
funds for repayment?

13
4.0 Literature Review
Farmers in India take recourse to debt, both from formal and informal sources,
not only to meet their investment needs but also to smoothen consumption in the face
of adverse income shocks. At very high levels of debt, apart from the inability to repay
it, the loss of creditworthiness no longer acts as a deterrent for non-repayment of loans,
particularly those acquired through formal channels (Chakraborty and Gupta, 2017a).
Debt relief/waiver schemes are, therefore, used by governments as a quick means to
extricate farmers from their indebtedness, helping to restore their capacity to invest and
produce. The costs and benefits of such debt relief schemes are, however, widely
debated in the literature (Patel, 2017). Apart from adding to the financial stress of
governments whose fiscal space may already be constrained, they may work against the
borrowing farmers if lending institutions refrain from extending loans to defaulters by
construing that they are likely to default again. Borrowers’ expectation of repeated
bailouts by the government may vitiate credit culture among farmers and may further
constrict farm lending (De and Tantri, 2016).
Empirical research on agricultural debt waivers in India are mostly centered
around the Agricultural Debt Waiver and Debt Relief Scheme (ADWDRS) 2008 of the
Government of India (GoI), under which ₹525.16 billion of agricultural debt issued by
commercial and cooperative banks were waived.1 Past research found mixed evidence
of the impact of ADWDRS on agricultural households. On the borrower’s side, while
debt relief was found to help reduce the overall household debt (Giné and Kanz, 2017;
Kanz, 2016), there appears to be differential impact on distressed beneficiaries who
benefit significantly from it compared to non-distressed beneficiaries whose loan
performance worsens after the waiver (Mukherjee et al., 2017). Although agricultural
debt waivers aim to increase investment and productivity of beneficiary households,
empirical evidence does not support it (Kanz, 2016). Waiver impact on beneficiary
farmers’ consumption and savings indicates that while the level and pattern of
consumption remained unaffected, there was a rise in precautionary savings in the form
of increased investment in jewellery, likely due to anticipation of higher credit
constraints in the post-waiver period (Mishra et al., 2017). There appears to be no
evidence of improvement in the ex post repayment behaviour of the waiver
beneficiaries. In fact, an expectation of similar debt relief in future generates moral

14
hazard and strategic loan default, i.e., loan defaults become sensitive to the electoral
cycle after debt relief (Giné and Kanz, 2017).
On the credit supply side, post-waiver lending slowed down in districts where
the exposure to waivers was high, as banks shifted credit to observably less risky
regions (ibid.). While this indicates improvement in efficiency of credit allocation post
waiver, on the flip side, restricted lending to backward districts could widen regional
disparities. Difficulties in obtaining formal credit post-waiver could lead farmers to
factor in future credit constraints and hence shift to informal sources of credit (Kanz,
2016). Consequently, loan waivers can have a dampening impact on lending by rural
credit institutions (RBI, 2018).
Against the backdrop of several state governments announcing agricultural
loan/debt waiver schemes in the recent past, this study has taken up Maharashtra’s
agricultural loan waiver scheme of 2017 as a case study. This is the first instance when
the state has waived farm loans, the first being the central government's ADWDR
scheme of 2008. The study differs from the existing literature on agricultural loan/debt
waivers in India—it examines the impact and implications of a state-level debt waiver
scheme, taking into account policies which are more specific to the state, unlike most
other studies which have largely concentrated on the impact of the central government's
debt waiver scheme.
Like most other agricultural loan/debt waivers, Maharashtra’s scheme was
implemented in fulfilment of an electoral promise, but the structure of the scheme
differed significantly from other schemes (Annex 1). First, the scheme was applicable
only to agricultural loans taken from rural co-operative institutions and not to loans
from commercial banks3. Second, it was restricted to loans taken by small and marginal
farmers with landholdings of 5 acres or less. Third, the scheme did not make a
distinction between running loans and overdue loans. Hence, all the farmers who had
an outstanding loan (as on March 31, 2016) were entitled to the waiver. Fourth,
although there was no explicit ceiling on the waiver amount per farmer, the average
loan size per farmer did not exceed ₹100,000 since lending by co-operatives was based
on scale of finance. Fifth, although the farmers were provided loan/debt relief by the
co-operative institutions on the year of the implementation, the state government spread
the reimbursement of the same to these institutions over a five-year horizon, thereby
reducing its fiscal burden.

15
5.0 Methodology of Study

Governments, in general, grant loan waivers to reduce debt overhang and help
spur agricultural investment. However, as can be seen in Table 4, the penal interest on
outstanding loans at the time of the loan waiver was very low, reflecting the low
overdue status of existing loans. This begs the following question: How do farmers
repay the loans when they continue to face financial stress, as is widely reported?
Furthermore, one of the major criticisms raised against the grant of loan waivers by
governments is that it affects credit discipline, thereby limiting future access of waiver
beneficiaries to institutional credit. Against this backdrop, our study attempts to test the
following hypotheses:
Hypothesis 1: Why is agricultural loan default low despite farmers facing financial
stress and what are the sources of funds for repayment? In order to test this hypothesis,
we use data collected from field surveys conducted on beneficiary and non-beneficiary
farmers in the selected regions.
5.1 Time Period of the Study

The survey was conducted during the period March–April 2019 through a
questionnaire. The questionnaire covered various aspects such as cost of cultivation,
income, formal and informal debt.
5.2 Data Sources

Primary Data Collection through Survey
A field survey was conducted in 11 villages a taluka Parner of Maharashtra,
Bhalwani, Kalkup, Malkup, Wadgaon Amli, Dhavalpuri, Bhanagadewadi, Goregaon,
Hivare Korda, Padali Kanhur, Jamgaon and Sarola Advai. While the selection of these
villages was largely governed by their relative share in the number of beneficiary
farmers and the amount of debt waived off, the moderately drought-prone, and only had
water in well during monsoon season.
Eleven PACCS were selected for the survey, with 4 PACCS from the Bhalwani
region which had the maximum number of waiver beneficiaries, and other 7 PACCS
are from other 3 regions. We randomly selected around 40 farmers who had loans
outstanding as of end-March 2016, i.e., the period reckoned for the waiver, in each of
16
the selected PACCS. Out of the selected total 110 farmers, responses were obtained
from 105 farmers. The sample included both beneficiary farmers (less than or equal to
5 acres) and non-beneficiary farmers (above 5 acres).
5.3 Cooperative Bank Data

To analyse the supply-side impact of debt waiver, this study used transaction
level data from the selected 11 PACCS in the 4 Branch, taking into consideration short-
term agricultural credit 5 given to small and
No. of Standard
Mean Median Minimum Maximum
Observations Deviation
Agricultural
Loan
amount 6813 10.8 10.8 0.658 8.17 12.6
Small &
Marginal 5713 10.6 10.7 0.630 8.17 12.6
Other
1100 11.3 11.4 0.514 9.21 12.6
Table 2:- Summary Statistic-Agricultural Loan Amount
marginal farmers (less than or equal to 5 acres) and other farmers (more than 5 acres)
for 2 years, i.e., 2015–16, 2016–17 and (up to 31 March, 2017). The summary statistics
show that the number of small and marginal farmers (treatment group) were more than
five times the number of other farmers (control group). The characteristics of
cooperative agricultural lending during 2016–17, the year of implementation of the
waiver, as given in Table 3, underlines the following:
(i) There is a positive relationship between short-term agricultural loan and
acreage, in line with the scale of finance. It may be mentioned that besides
acreage, scale of finance is also determined by cost of cultivation for various
crops.
(ii) In terms of share in the respective groups, more than half of the non-
beneficiary farmers got credit as compared to around 46 per cent for small
farmers and 44 per cent for marginal farmers.

17
Average Avg
Average
Loan Interest
Acre
Amount Rate(%)
Marginal
Farmers 1.6 36200 7
Small
Farmers 3.7 65000 7
Other 7.3 91000 7

Table 3:- Farmer Type-Loan Charactership
Hypothesis 1: Why is agricultural loan default low despite farmers facing financial
stress and what are the sources of funds for repayment?
Loan default in agricultural loans taken from co-operatives was found to be low
among the surveyed farmers at the time of the waiver, i.e., as at end-March 2016.
Overdues in crop loans availed during 2015–16 accounted for merely 0.5 per cent of
total crop loans for small and marginal farmers and 2 per cent for other farmers. One of
the stated reasons was the impact of loan defaults on credit history, which would
hamper their future access to credit. Furthermore, prompt repayment of crop loans
obtained from cooperatives
No. of Total
Principal Interest
Loan Type beneficiary amount
waived waived
farmers waived
Crop loans
and Medium
Term 11290 2137174 698497 2835671
Agricultural
Loans
Long term
346 1180281 633040 1813321
loans
Total 11636 3317455 1331537 4648992
Table 4: Details of Agricultural Loans Waived in 2016
gets the benefit of full interest relief by the state government Co-operatives, therefore,
encouraged farmers to pay on time as this would not only enable them to avail interest
18
rate relief but also make them eligible for fresh crop loans which were, in general,
higher than the retired loans, in keeping with periodic revisions in the scale of finance.
Thus, given the past experience of waiver benefit being extended to both overdue and
running loans, the farmer would stand to gain if and when such waiver schemes are
implemented. Reputation risk and the fear of losing their collateral, in case of crop loans
extended against the pledge of jewels, also influenced farmers’ repayment behaviour.
However, the survey found that farmers who paid from their own sources constituted
around half of the total number of farmers interviewed (Chart 1). Although 25 per cent
of the overall.
Chart 1:- Repayment of Loans to Co-operatives
Chart:- Repayment of Loans to Co-operatives

Respondents stated that they relied on relatives and friends to provide funds for
repayment, the high interest rates observed for these loans indicate that such loans could
have also been obtained from moneylenders/traders. So more than a third of the
repayment funds come from informal sources, often at very high costs. These loans get
settled as soon as the co-operatives extend fresh loans to the farmers which, in most
cases, is within a month from repaying the earlier loan. Hence, despite having to borrow
at high interest rates in order to repay crop loans on time, the overall cost of borrowing
19
for the farmer is low, considering that such prompt repayment of loans from
cooperatives renders the loans virtually interest-free.
5.4 Discussion on the Findings

Cognizance of the following factors may be taken in understanding and
interpreting the empirical results presented above.
Verification of Accounts Eligible for Loan Waiver

Loan waivers in the past were fraught with allegations of misuse and
misappropriation of funds. Hence, the state government engaged the administrative
machinery to verify the accounts eligible for loan waiver to ensure that only intended
farmers are benefitted. This slowed down the sanctioning and disbursal of loans to
beneficiary farmers, i.e., small and marginal farmers, during the first half of 2016–17.
Further, loan disbursement to both beneficiary and non-beneficiary farmers during
November–December 2016 was adversely affected by the withdrawal of specified bank
notes (SBNs) and the consequent cash withdrawal limits. As PACCS were maintaining
individual accounts with DCCBs, they could not withdraw more than ₹24,000 per week
during this period for onward lending to farmers.
Role of Relationship Banking

Recovery problem was noticed in a few cases of loans extended to
nonbeneficiary farmers, after announcement of the waiver by the Tamil Nadu
government, as they deferred payments in anticipation of the state government
extending the waiver scheme to them. Since the co-operatives work on the basis of
relationship banking principle, wherein they develop a close relationship with their
member borrowers over time, they encouraged the non-beneficiary farmers to make
prompt payment on crop loans in order to avail interest relief, with the promise of fresh
loans at the earliest.
Reduction in Recyclable Funds

Prompt repayment of crop loans was incentivised by the state government
through the provision of interest relief from 2007–08 onwards. Interest incentive
payments increased sharply in 2009–10, consequent to the state government granting

20
full interest relief. Since then the interest incentive payout has been steadily increasing.
It had reached the highest in 2014–15, the year prior to loan waiver, indicating that crop
loans were, in general, paid on time (Chart 7). Interest incentive fell sharply in 2015 16,
the year reckoned for the waiver. Hence, for those co-operatives which were receiving
prompt repayments from farmers, the waiver entailing staggered reimbursement from
the government, reduced their recyclable funds. Further, loanable funds of DCCBs were
affected by the delay in receiving reimbursement from the government. It may be noted
that agricultural loans are disbursed by PACCS with funds from NABARD, MHSCB
and DCCBs. As
Chart 2:- Interest incentive for prompt repayment

Source:- National Federation Of State Coop Banks Ltd
MHSCB is the channel for NABARD funds, which are paid as and when due,
reimbursement of NABARD funds was first given by the state government in 2016–
17.8 Reimbursement of loans waived by the co-operatives, which was to be staggered
over a five-year period, commenced only in 2017–18, with the payment of both the
instalments for 2016–17 and 2017–18 along with interest due. Reflecting this, the share
of funds from DCCBs in the total crop loan given by co-operative institutions declined
to 27 per cent in 2016–17 from around 40 per cent in 2015–16 (Chart 3).

21
New Borrowers after Debt Waiver: Indicative of Moral Hazard?

At the time of undertaking the survey, post-waiver loans were not due for
repayment. Hence, repayment behaviour of the beneficiary farmers could not be studied
to check for moral hazard stemming from the debt waiver. We, therefore, tried to see if
there was an increase in new borrowers post-waiver. We found that there were many
new borrowers, mostly from the marginal and small farmers’ categories. These
borrowers could have joined in anticipation of future loan waivers. Anecdotal evidence
also suggests that some large farmers had divided their landholdings amongst family
members in order to become eligible for any future agricultural loan-waiver scheme.
This can not only lead to fragmentation of landholdings but also create a moral hazard
problem.
Chart 3:- Crop loans extended by Co- operative Institutions

Source:- National Federation Of State Coop Banks Ltd
5.6 Field Survey Findings

The salient features of the field survey are given as follows. Among the
surveyed farmers, around 20 per cent of the farmers relied solely on cultivation. Further,
in all the surveyed region it was found that the reliance on cultivation alone, for income,
was higher for non-beneficiary farmers then for beneficiary farmers Animal husbandry
was the main source of supplementary income in all the surveyed districts, and in a

22
drought year like 2016–17 it was the primary source of income for many farmers as
they suffered extensive crop damage.
The Mahatma Gandhi Rural Employment Guarantee Act (MNREGA) scheme
provided the second highest income source to small and marginal farmers (Chart 5).
Pattern in the farm income dependance on the

cultivation
Share of respondents in %
38.3
34.2
29.1 28.6 28.575
25.9 24.1 25
18.3
15.8
BHALWANI REGION DAVALPURI GOREGAON JAMGAON REGION OVERALL

REGION REGION
Small Farmers Other
Chart:-4 Pattern in the farm income dependance on the cultivation
A comparison of cost vis-à-vis income for the two farmer groups indicates that
agricultural incomes for both groups in 2016–17 were not commensurate with their
costs (Chart 6). This was more stark in the case of other farmers wherein the proportion
incurring cost below ₹50,000 was less than one-fourth of the total in that category, but
the proportionate earning income of less than ₹50,000 was around 58.7 per cent. As
cost for other farmers are higher than for small and marginal farmers, the impact of a
drought has been more severe on their incomes.
Chart:- 5 Patterns in farm income-Income from sources other than cultivation

23
Chart 6:- Survey Result Cost vis a vis Income
Based on the suggestions received during the discussions with the farmers and domain
experts, a holistic approach to address the difficulties faced by the
farmers must include the following:

(i) Wider Coverage of Crop Insurance: Our survey findings indicated
that some of the crops which were widely cultivated in certain regions were
not covered under the crop insurance scheme due to lack of crop-cutting
experiments on which these yield-based insurance schemes are usually
based. Hence, there is a need for comprehensive coverage of major crops.
There is also a need to simplify the insurance application procedure, which
is presently time-consuming, and also to reduce delays in settlement of
claims.
(ii) Reduction in the Reliance on Informal Sources of Credit: Most

farmers covered in our survey stated that the crop-wise scale of finance
provided by the co-operatives was inadequate to meet their farming
operations. This forces them to borrow from moneylenders at very high
costs or pledge their forthcoming produce to traders at very low prices,
thereby reducing their pricing power. Enhancing the scale of finance could
help in reducing their reliance on informal sources, improving pricing of
their produce and thereby increasing their income.

24
(iii) Diversification of Crops: Farmers, particularly in areas which are

rain-fed, need to move away from crops which are water-intensive and
adopt cropping patterns more suited for the agro-climatic conditions of the
region.
(iv) Technological Advancements: Better irrigation practices, improved

seeds, mechanisation wherever possible and use of innovative farming
practices can help reduce costs and improve yields.
(v) Increasing Farmers’ Direct Access to Agricultural Markets: Despite

various measures taken by the government and non-governmental agencies, agricultural
marketing continues to remain weak. In this regard, there is a need to increase farmer
producer organisations (FPOs) in the state10 and strengthen them in order to facilitate
direct linkage between consumers and farmers and help them to get a remunerative
price for farm produce. Farmers may also be trained in post-harvest processing, packing
and marketing which would reduce their dependence on private traders.
Together with these measures, steps to strengthen agricultural extension

services and promotion of greater awareness among farmers about their entitlements
under various central and state government schemes would fortify the agrarian
economy.

25
6.0 Conclusion
The Maharashtra Governments agricultural loan waiver scheme, 2017 was

effectively implemented, as is evident from all surveyed farmers who were eligible for
the loan waiver being given the benefit by September 2017, i.e., within three months of
the issuance of the circular to this effect. However, co-operatives faced funding
constraints in the year of implementation, i.e., 2017–18, due to the combined impact of
loan waiver which affected their lending. Based on transaction-level data from the
surveyed PACCS, we found that near the cut-off acreage, the probability of non-
beneficiary farmers getting loans from the co-operatives was higher than beneficiary
farmers in the immediate period post-waiver, i.e., 2016–17. However, this differential
impact was not evident in the subsequent year, with the easing of the constraint on
funds, consequent to the receipt of reimbursement from the state government. Hence,
the waiver seems to have affected the ability of lending institutions to extend loans
rather than their willingness to do so. The state government’s loan waiver scheme has
helped to reduce rural indebtedness of small and marginal farmers to a limited extent,
insofar as their outstanding borrowings from co-operatives were written off in full as
on the identified date. However, the overall indebtedness of farmers to formal as well
as informal sectors, continues to remain high. According to data from the All India Debt
and Investment Survey (AIDIS) 20139, Maharashtra has a higher share of farmer
households availing credit from formal channels than the all- India average, but their
reliance on informal sources of credit, particularly on professional moneylenders, also
continues to be high. This was also confirmed in our field survey findings which show
that although overdue loans were low at the time of the waiver, more than a third of the
funds for repaying the agricultural loans taken from the co-operatives came from
informal sources, often at a very high cost. Moreover, the increase in new borrowers’
post-waiver, and indications of land division among family members in expectation of
future waivers, indicates the moral hazard of having repeated debt waivers. Thus, debt
waivers to ameliorate the problems faced by farmers can provide only a temporary relief
and not a lasting solution to rural indebtedness.

26
7.0 Reference
1) Chakraborty, Tanika and Gupta, Aarti (2017a). “Loan Repayment

Behaviour of Farmers: Analysing Indian Households", Indian Institute of
Technology, Kanpur, BorrowingBehaviorAT. Pages 24-28
2) De, S. and Tantri, P. (2016), “Borrowing culture and debt relief: Evidence
from a policy experiment’, Indian School of Business WP 2242390.
http://dx.doi.org/10.2139/ssrn.2242390.
3) Patel, U.R. (2017). Opening remarks in the seminar on agricultural debt

waiver – Efficacy and limitations, Reserve Bank of India, August, 31.
www.rbi.org.in/Scripts/BS_SpeechesView.aspx?Id=1045.
4) Giné, X., and Kanz, M. (2017). “The economic effects of a borrower bailout:
Evidence from an emerging market”, The Review of Financial Studies,
31(5):1752–83.
5) Government of India (GoI) (2014). “Implementation of the debt waiver and

debt relief scheme, 2008”, Public Accounts Committee 2013–14, 95th Report,
February.
6) Mishra, M., Venkatesh, K., P. Tantri, and Nagaraju, T (2017). “Does a Debt
Relief Lead to Increased Precautionary Savings?: Evidence from A Policy
Experiment”, WP 2729653, 30 May 2017, Indian School of Business. http://
dx.doi.org/10.2139/ssrn.2729653.
Websites
1) https://pmjandhanyojana.co.in/csmssy-in-shivaji-shetkari-sanman-yojana-maharashtra-
farmer-loan-waivers/
2) https://www.maharashtra.gov.in/Site/Common/governmentResolutions.aspx
3) http://nafscob.org/ccb_f.htm

27
8.0 Annexure
Annex 1: Recent Loan/Debt Waiver Schemes of State Governments: A Comparison

States/Year of Farmer Institutions Loan category Period of loan Limit per farmer Payment of waiver amount to Cost to the
implementation category lending institutions state
exchequer (₹
Billion)
1 2 3 4 5 6 7 8
Tamil Nadu Small and Rural co- All short-term, All loans outstanding No limit Phased 60.95
(2016) marginal operative credit medium- term as on March 31, 2016 reimbursement
farmers institutions and long-term over five years
excluding UCBs agricultural loans
Andhra Pradesh All farmers SCB,RRBs and Short-term crop Loans outstanding as on Up to ₹150,000; only Phased 240.00
(2014) rural co-operative loans, including March 31, 2014 one loan per farmer reimbursement
credit institutions those issued over five years
against gold and
those converted to
MT loans due to
calamities
Telangana All farmers SCBs, RRBs and Short-term crop Loans outstanding as on Up to ₹100,000; only Phased 170.00
(2014) rural co-operative loans, including March 31, 2014 one loan per farmer reimbursement
credit institutions those issued over 4 years
(including UCBs) against gold and
those converted to
MT loans due to
calamities

28
Annex 1: Recent Loan/Debt Waiver Schemes of State Governments: A Comparison
States/Year of Farme Institutions Loan Period of loan Limit per farmer Payment of waiver Cost to the state
implementation r category amount to lending exchequer (`
catego institutions Billion)
ry
1 2 3 4 5 6 7 8
Karnataka All Rural co- Crop loans Loans outstanding as on June 20, 2017 Up to ₹50,000 per Payment by June 2018 around 80
(2017) farmers operative farmer; only one loan or as and when the
institution per farmer claim is raised by the
lending institutions
s
Karnataka All SCBs, Crop loans Crop loans from SCBs/RRBs sanctioned Up to ₹ 200,000 for Phased reimbursement in around 400
(2018) farmers RRBs,Co- on or after April 1, 2009 and classified as overdue loan from four instalments
operative NPA/ restructured/overdue and SCBs per farmer; up
credit outstanding as on December 31, 2017
to ₹100,000 for
societies/bank (incentive up to ₹25,000 would be paid
outstanding loans
to farmers who have repaid their crop
s excluding from co-operatives
loans within time); crop loans from co-
UCBs operatives outstanding as on July 10,
2018

29
Annex 2: Rainfall Pattern

30
Annex 3:-Format for the field Survey

31

32

33

34

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A STUDY ON AGRICULTURAL LOAN WAIVER

SCHEME BY MAHARASHTRA GOVERNMENT

Korde Prafull Prakash

UNDER THE GUIDANCE OF

Prof. Varsha Maheshwari

A PROJECT SUBMITTED IN PARTIAL FULFILMENT OF

VIDYALANKAR INSTITUTE OF TECHNOLOGY

Wadala (East), Mumbai 400 037

Korde Prafull Prakash

UNDER THE GUIDANCE OF

Prof. Varsha Maheshwari

A PROJECT SUBMITTED IN PARTIAL FULFILMENT OF

VIDYALANKAR INSTITUTE OF TECHNOLOGY

Wadala (East), Mumbai 400 037

Signature of Faculty Guide Head of Department

This is to declare that the study presented by me to Vidyalankar Institute of Technology,

Place:- Mumbai Korde Prafull Prakash

waiver scheme by Maharashtra Government” is a bona fide work carried out

by Mr. Prafull Prakash Korde in the Master of Management Studies Department of

Vidyalankar Institute of Technology, Mumbai and is submitted in partial

fulfillment of the requirements for the award of the degree of Master of

Management Studies in Finanace.

Prof. Varsha Maheshwari

Dr. Amit Oak

Professor and Head

Department of Management Studies

My project on A study on agricultural loan waiver scheme by Maharashtra

Korde Prafull Prakash

Sr. No. Name of the Chapter Page No.

4.0 Literature Review 14

5.0 Methodology of Study 16

Vidyalankar Institute of Technology,Wadala

Vidyalankar Institute of Technology,Wadala

2.1 HISTORY OF FARM LOAN WAIVERS IN INDIA

Table 1: Selected History of Loan Waivers

Haryana 1987 2275.1 Cooperative bank loans under 20,000

Tamil Nadu 1996 200 Interest waiver of 3 per cent

Tamil Nadu 2004 610.5 Interest waiver of 3 per cent

Vidyalankar Institute of Technology,Wadala

Kerala 2006 Kerala Farmers’ Debt Relief

Tamil Nadu 2006 68660 Loans from cooperative banks

Central 2008 522598.6 Agriculture Debt Waiver and Relief

Vidyalankar Institute of Technology,Wadala

10 per cent of the principal amount till 31

Vidyalankar Institute of Technology,Wadala

Jammu & Kashmir Government declared

Vidyalankar Institute of Technology,Wadala

Loans below ₹0.2 million for government

Agriculture Debt Waiver and Debt Relief Scheme, 2008

Vidyalankar Institute of Technology,Wadala

Debt Relief to farmers under Chhatrapati Shivaji Maharaj Shetkari Sanman

Launch details of the scheme

Key features of the scheme

Eligibility criteria for the scheme

Vidyalankar Institute of Technology,Wadala

Mahatma Jyotirao Phule Karz Mafi Yojana- 2019

The Maharashtra government on kickstarted the much-anticipated farm loan

While the second list of another 100,000 beneficiaries will be released on

Vidyalankar Institute of Technology,Wadala

Key features of the scheme

Eligibility for the applicants

1. Only for Maharashtra residents – The farmers must be permanent and

Vidyalankar Institute of Technology,Wadala