PM right to say loan waivers are lollipops and don’t fix the real issues, but BJP did the same in UP, Maharashtra.
Prime minister Narendra Modi did well to, at his meeting in Ghazipur in Uttar Pradesh, dismiss the Congress party’s farm loan waiver proposals as mere election gimmicks, as something that did little to resolve the real problem of farmers; the promise of loan waivers by the Congress party played a significant role in the party’s improved fortunes in the recent assembly elections. What is not clear, however, is whether the prime minister was talking about loan waivers in general or just those announced by the Congress or other Opposition parties. After all, in the run-up to the Uttar Pradesh elections in 2017, Modi himself announced a Rs 36,000 crore farm loan waiver; indeed, in the same year, the BJP-ruled Maharashtra also announced a Rs 34,000 crore farm loan waiver. In Karnataka, Modi said that while lakhs were promised waivers earlier this year, just 800 farmers have got this; and in the case of the national-level loan waiver in 2008, Modi said that while farmers owed banks Rs 6 lakh crore, the UPA only gave waivers of Rs 60,000 crore. This would suggest Modi was more focused on how many farmers got the waiver as opposed to whether loan waivers were, in fact, good or bad for farmers; and his contention appears to be that not as many farmers benefited under loan waivers promised by opposition parties like the Congress.
Modi was, of course, right when he stressed the role of infrastructure-creation like cold-chains in alleviating farmer stress. Yet, he paid little attention to the role of free markets and, instead, told farmers that it was his government that was trying to give farmers a fair deal by raising the minimum support price (MSP) for crops to at least 1.5 times their A2+FL costs and by increasing the number of crops that got this MSP support. As a result of not being able to free markets while, at the same time, not being able to ensure procurement of crops by government agencies, mandi prices are around 25-30% below the MSPs. If you take a historical average of India’s farm prices versus global prices—14% lower between 2000-01 and 2016-17, according to an ICRIER estimate—India’s farmers get shortchanged by around Rs 2.5 lakh crore a year based on this estimate. In which case, as this newspaper has argued before, most farm loan waivers are just a form of atonement, to make up for the fact that farmers are not getting the market price for their crops.
Indeed, had Modi been focused on the ills of farm loan waivers—as opposed to just those given by Opposition parties—he would have talked about the fact that, after loan waivers, there is a fall in bank credit which, in turn, means farmers end up paying more interest to informal sector lenders. There are also enough studies that indicate a lot of false reporting, in the sense that a lot of what passes for credit to farmers is actually diverted to other sectors. If the Modi government is not going to offer a pan-Indian farm loan waiver, what does it plan? A Telangana-style Rhythu Bandu acreage-based income support is a good idea, and while this could cost the government around `2 lakh crore a year, it is important to keep in mind the government spends around this much on farm subsidies even today, but these are cornered by just the top 5-10% of farmers. Also, if farmers are shortchanged by around Rs 2-2.5 lakh crore a year due to the lack of marketing freedom, this needs to be given back to them.