The temperature of Karnataka polls has risen as both Narendra Modi and Rahul Gandhi have come out in the battleground to win the crucial state election ahead of the General Election next year. The BJP on Friday promised a crop loan waiver of up to Rs 1 lakh from all nationalised and co-operative banks in the state if elected to power, which may not be a good idea as experts see it as a quick fix, unable to solve the agrarian crisis.
Do loan waivers work?
“Does it help farmers? Of course, it does; but it also affects the credit system in India,” Sameer Narang, Chief Economist, Bank of Baroda, told FE Online. He said that its impact is short-term and a multitude of initiatives are required to solve the agrarian crisis. “One scheme fits all will not work in India. There should be a long-term solution and it must start today,” he added.
The Narendra Modi government in the Budget 2018 vowed to increase minimum support price (MSP) to one-and-a-half-times of farmers’ produce, which is a positive step towards fixing the farm distress, Sameer Narang said. Even as the central government has announced several schemes to double farmers’ income by 2022, at least four states have announced farm loan waivers.
Quick fix + domino effect
Reserve Bank of India (RBI) governor Urjit Patel last year warned of the domino effect of loan waivers, and said that it has emerged as a quick fix to ease farmers’ distress. The latest RBI data showed that outstanding bank advances to agriculture and allied activities have risen from about 13% of GDP in 2000-01 to around 53% in 2016-17.
A research report by SBI also said that it is important to move ahead with an “income compensation scheme” rather than “perpetually promoting” a loan waiver culture for the farmers.
The agrarian crisis:
In Karnataka, over 35,000 farmers committed suicide between April 2013 and November 2017, of which nearly 2,500 were suffering from crop failure and drought. The number of farmers’ suicide in Karnataka was second highest after Maharashtra, according to NCRB data.
India faced two consecutive drought years in 2014-15 and 2015-16, leading to an aggravated agrarian crisis in many states, including Karnataka. Moreover, farmer income losses from climate change could be between 15% and 18% on average, rising to anywhere between 20% and 25% in unirrigated areas, the Economic Survey had said.
What is the alternative?
Urjit Patel endorsed some of the government’s initiative to establish a nation-wide market for agricultural produce through eNAM, the Pradhan Mantri Fasal Bima Yojana (insurance), the Pradhan Mantri Krishi Sinchai Yojana (irrigation), the Paramparagat Krishi Vikas Yojana and the national drive towards financial inclusion for all as “important initiatives” in fixing agrarian crisis.
As agriculture is highly dependent on the monsoon, Chief Economic Advisor Arvind Subramanian asked the government to build a robust irrigation system in the country as climate change is threatening the agriculture sector.
He asked the government to accord drip and sprinkler irrigation greater priority in resource allocation in view of depleting water level. The government allocated Rs 9,429 crore to irrigation in the Budget 2018. Noted agriculture economist Ashok Gulati has called it an “agriculture emergency” and suggested that the government can instead provide subsidy or direct income support.
What else for Karnataka farmers from BJP
Besides farm loan waiver in Karnataka, the BJP also promised Rs 5,000 crore ‘Raitha Bandhu Market Intervention Fund’ that will monitor implementation of all farmer friendly schemes. The party also promised to make water available in the drought-affected state with a spending plan of Rs 1.5 lakh crore.