After intense farmer agitations, recently the Maharashtra government was forced to announce a sweeping farm loan waiver for all marginal farmers. This comes on the heels of a similar waiver announced by the Uttar Pradesh government earlier this year. The worry now is that similar demands will crop up in other states, especially in poll-bound states, such as Karnataka.
The scale of the loan waiver is truly staggering. According to Credit Suisse, total agricultural credit
by scheduled commercial banks
stood at Rs 15 lakh crore in FY17. Of this, loans worth less than Rs 2 lakh account for 86 per cent of all loans disbursed and 41 per cent of the amount of loans disbursed, as shown in Chart 1. As states are largely looking at loans of less than Rs 1 lakh, this provides an estimate of the problem.
Karnataka, along with Tamil Nadu, Uttar Pradesh, Maharashtra, and Andhra Pradesh, accounts for nearly half of all the outstanding loans (Chart 2). But, Maharashtra, with a lower fiscal deficit, is an exception.
As Chart 3 shows states such as Madhya Pradesh simply do not have the fiscal space to provide for such loans, though one option could be to simply stagger the waiver over a number of years so as to reduce its impact on the yearly fiscal deficit.
These waivers are palliatives at best and do not address the crux of the issue, which is small land holdings don't generate enough income. Small and marginal farms account for over 80 per cent of all land holdings, as shown in Chart 4.
But, the income from cultivating is simply not enough to generate a meaningful surplus across most crops. As shown in Chart 5, in 2016-17, on one hectare, a farmer would have barely earned Rs 20,000 from rice or wheat. Moong and urad are even less profitable, as shown in Chart 6. And, if the land was on lease, even this amount was hard to come by.
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