Incomes and household expenses of farmers rise post loan waivers: Study

The study found no major change in size of holdings in Punjab and UP farms post waiver, which showed no impact of the scheme on the land holding status of beneficiaries

With farmers forming a sizeable section of the voters in most states where polling is currently underway or has just ended, reducing their debt burden has been one of the key promises made by political parties.

Farm loan waivers have long been used to achieve this objective, regardless of their impact on the exchequer.

Of the two states that went to the polls recently, farm loan waivers were indeed one of the key promises of the incumbent governments the last time around in 2017.

Though undocumented, the promises could have played a part in garnering the support of farmers in Punjab and Uttar Pradesh five years ago.

Be it Captain Amarinder Singh’s promise to waive off farm loans or Prime Minister Narendra Modi’s announcement of making UP farmers’ debt free, the promises could have played a role in turning farmers towards the Congress and the BJP, respectively, in 2017.

Now that both the incumbent governments are again seeking another mandate for their respective parties, how far and how much did the waivers after implementation benefitted farmers, is an issue that needs to be examined.

A study sponsored by the Union Ministry of Agriculture and conducted by the Agro-Economic Research Centre (AERC) of the Punjab Agriculture University some time back throws some light on this vital issue.

The study finds while beneficiaries' incomes did increase after their debts were waived, that may not have happened entirely due to the waiver. However, there was a clear increase in investments in ancillary farming such as livestock rearing.

The study also found that there was no major change in the size of operational holdings on the selected farms in Punjab and Uttar Pradesh after redemption of loans, which showed no impact of the scheme on the land holding status of beneficiaries.

The cropping pattern and ownership of assets of the loan waiver beneficiaries also did not change significantly in the pre- and post-waiver periods.

The study also found that the operational cost of cultivation of all crops grown on select farms in both Punjab and UP rose after the waivers but could be completely unrelated and was mostly due to the rise in cost of inputs such as seed, fertilisers, human labour and such like, rather than benefits under debt waiver scheme.

It was also found that both in UP and Punjab, there was a there has been a spike in the household expenses of the beneficiary farmers, mostly on grocery items, education, health care and electricity and phone bills.

“But this change may also be due to the increase in prices of grocery items, education fee and healthcare facilities,” the study clarified.

As expected the study found most beneficiaries in both Punjab and UP had availed loans from co-operative societies and commercial banks.

One good thing that the waivers did, as per the survey, was that it lowered the dependence of the sampled households on non-institutional sources of finance such as commission agents or 'arhatias', relatives and friends.

Interestingly, the study also found that due to the loan waiver, the sampled farmers in Punjab were able to repat larger chunks of non-institutional loan as well. In UP too, there was a change in the amount borrowed, as well as a decline in the amount outstanding for the surveyed beneficiaries, which confirms the impact of the debt waiver scheme in that state.

“After the waiver, some respondents repaid their commercial bank loans, debt of commission agents, bought agricultural implements and invested in some insurance policy. Thus, loan waiver scheme helped the farmers diversify their pattern of savings in more rational manner,” the study found.

The constraints and problems

It was not as if the waivers were perfectly execute. The study also found that in Punjab, most of the farmers reported having lost man days in availing benefits of the scheme as they had to spend time procuring the requisite documents to meet the scheme requirements, while in UP farmers complained of having to spend time to avail scheme benefits and incurred different type of costs in terms of delayed farm/dairy related activities.

Farmers also lost man days to take benefits of the loan waiver scheme and have to bribe the concerned officials, the study found.

What was the loan waiver scheme?

In the case of Punjab, the loan waiver scheme, called the ‘The ‘Farm Debt Waiver Scheme’ as announced by the state Government in 2017 covered the crop loans of marginal and small farmers.

In the case of marginal farmers, the entire eligible amount of those who have total outstanding crop loan liability up to Rs 2 lakh was to be provided as debt relief and in case the eligible amount exceeded Rs 2 lakh, only Rs 2 lakh was to be provided as debt relief.

In case of small farmers, the entire eligible amount of those farmers who have total outstanding crop loan liability up to Rs 2 lakh, was to be provided as debt relief by the lending institutions namely; Co-operative Credit Institutions, Commercial Banks and Regional Rural Banks.

To start with, the scheme was implemented for loans availed only from Co-operative Credit Institutions and then covering the loans forwarded by the commercial banks.

In case of UP, the state government on April 4, 2017 announced a Rs 30,729 crore scheme waiving crop loans up to Rs 1 lakh for small and marginal farmers.

In addition to this, Rs 5,630 crore was allocated for writing off bad loans of around seven lakh farmers, which had become NPAs for banks, which took the total amount allocated for loan relief to Rs 36,359 crore.

Credit culture

Notwithstanding the benefits and overall impact of farm loan waivers, it cannot be disputed that such programmes do, in fact, have a debilitating impact on the credit culture of agriculture.

The Reserve Bank of India (RBI), in an internal working group meeting tabled in 2019, had said that loan waivers announced by states have affected the credit culture in the country with many borrowers withholding repayment, in anticipation of a waiver.

This adversely affected the credit history of borrowers and their future prospects of availing fresh loan for agricultural purposes, which was reflected in rising gross NPA for agriculture as on March 2019.

“Notwithstanding the evidence of deficit rainfall conditions and downswing in agriculture produce prices in announcements of loan waivers, the timing of loan waiver announcements during election cycles points to more of political expediency of such waiver programmes that does not really address long-term issues in agriculture,” the working group had said.