No Quick Fix: Farm loan waivers no solution, says Niti Aayog member Ramesh Chand

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New Delhi | Published: January 6, 2019 4:51:32 AM

l Feels Centre should ensure access to formal credit, efficient crop insurance

Farm loan waivers, Niti Aayog, Ramesh Chand, MSP rates, MSP policy, agricultural loansThe government could tweak the scheme to incentivise farmers to take the insurance cover on a recurring basis.

Instead of populist measures such as farm loan waivers or fiscally unsustainable Rythu Bandhu-type income support schemes, the Centre should ensure more farmers have access to institutional credit, it should formulate a more efficient crop insurance scheme and prevail upon the states for effective implementation of the minimum support price policy, NITI Aayog member Ramesh Chand has said.

“The best package for farmers is one that can ensure remunerative prices for their crops. All other things like loan waivers will not be that meaningful,” he told FE. Thanks to the new MSP policy that promises 50% return over cost of production (A2+FL), the average realisation in most crops this year has been higher than the previous year, he said. Even if the procurement hasn’t risen much, the policy has had an impact on market prices. For paddy, the average price realisation by farmers is 7% higher in October-December 2018 than in the same period in 2017, Chand said.

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On the criticism that in the case of many crops farmers are still being forced to sell their produce at below MSP rates, Chand said states need to be held accountable for implementation of the MSP scheme, under which cost of procurement up to 25% of production is funded by the Centre. “If states procure at least 25%, the price of crops will find support in the market,”
he added.

Even in case of paddy and wheat, where robust procurement has taken place over the past so many years, the overall procurement is about 30% of the production. It is not that procurement needs to be 80% or even 50% for it to have the desired impact on the market, he said. The second priority of the government should be to make available adequate credit to fund-starved farmers to buy farm inputs. As per a Nabard survey, only 36% of farmers take loans from institutional sources. As many as 48% farmers do not take loans due to various reasons and of the remaining 52%, 70% take loans from institutional sources while others get credit from private money lenders.

“When the spending on loan waiver is so huge while the benefit is limited to only 36%, there is no justification,” Chand said. Even as farm loans waivers are the flavour of the season, with political parties vying to outdo one another in write-offs, official data shows that in Punjab, Tamil Nadu and Kerala, fresh agricultural loans in 2015-16 were much higher than the estimated value of crop output in that year, clearly indicating that much of the funds don’t really go into agriculture.

Thirdly, whenever there is some natural calamity, the insurance payment to farmers must be prompt and adequate, Chand said. Due to a spate of farm loan waivers, the number of loanee farmers (for whom insurance is mandatory) covered in both kharif and rabi seasons declined by 19% from 4.36 crore in 2016-17 to 3.54 crore in 2017-18.

The government could tweak the scheme to incentivise farmers to take the insurance cover on a recurring basis. Appreciating Telangana’s Rythu Bandhu-type scheme, which is also being adopted by Odisha, Jharkhand and West Bengal, Chand said such a scheme would, however, have huge fiscal implications for the Centre. If the Centre follows the Telangana’s investment support of Rs 8,000 per acre to farmers in a year, the cost for a national level scheme would be about Rs 2.6 lakh crore (net sown area 33 crore acre).

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