Farmer Suicides – Is loan waiver a solution?

Quick fix solutions have always been the mantra of various governments whether it was the NDA or now the UPA. Years of lethargy and inaction has lead to crisis situations that the government at the centre tries to sweep under the carpet by taking desperate decisions. The decision of reservation for SC/ST was a political decision keeping in mind the huge vote bank. That was followed by the sealing/de-sealing drama. Now the government is chalking out plans to appease the largest vote bank of all; the farmers.

Farmer suicide cannot and should not be ignored. Ignore it at your peril as Mr. Chandrababu Naidu found out in Hyderabad. The present government has recognized that and as always has proposed a quick fix solution. It proposes to announce the waiving off the farmer loans on February 29, 2008 when the Budget will be presented by Mr. P Chidambram.

In case such a decision is taken, will it be an economic decision or will it be a political decision? Certainly neither BJP, nor the left will oppose this in parliament as nobody will want to be on the wrong side of the largest vote bank of India. Before we analyze this further, let us delve on a few nummers:

1- The agriculture segment employs the largest number of Indians.
2- It still contributes only 2.3% of the total GDP
3- Over 55% of the farmers produce only 17% of the total output
4- The proposed waive off can be anywhere between 32,000 crores to 90,000 crores.
5- The proposed waive off will be equivalent to almost 2% of the GDP.

Point 1 is perhaps the sole reason why any ruling party will want to take a populist decision and not an economically viable one. However, the teething problems that government will face are as under:

A- How to differentiate between large farmers who can pay off the loan and the small farmers who actually need the benefit? Will such a loan waiver reach the target beneficiaries? Going by the track record of the government whereby out of every rupee 1 of subsidy offered, only 27 paise reaches the target beneficiary (as per the Planning Commission report), it is going to be an arduous task. Improper implementation will mean huge burden on the economy with minimum benefit.

B- The loan waive off will be a short term solution. Most of the farmers have marginal land holdings that are not economically viable. Such bad debt will emerge again and again and therefore a loan waiver cannot be a permanent solution.

C- In light of Point B above, would it not be prudent to rather invest the amount in providing better irrigation facilities, better seeds, and better marketing support? This will be a long term solution.

Then again, with the elections round the corner, we all know that short term political interests will rule over long term National interest that is economically viable and sustainable.

This entry was posted on Sunday, February 24th, 2008 (I migrated from blog.co.in)