Karnataka election manifestos: No long-term farm fix, just more loan waivers

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New Delhi | May 8, 2018 4:14 AM

Both the BJP and the JD(S) have announced farm loan waivers as part of their Karnataka election manifestos.

farming sector, farmers, karnataka, karnataka electionsTo be sure, farmers haven’t had an easy time, given the two droughts in 2015 and 2016.

Had even half the quantum of farm loans waived by the UPA government in 2008-2009, of close to Rs 53,000 crore, been put to work to create irrigation and other facilities, the plight of India’s farmers today would not have been so acute. Instead, eight years down the line, governments continue to take the easy way out in their desperation to win votes. While the BJP had promised a loan waiver ahead of the Uttar Pradesh elections, other states such as Maharashtra and Rajasthan have also allowed farmers not to repay their loans. Now, both the BJP and the JD(S) are wooing the Karnataka electorate with similar promises. The tab that the states need to pick up has already crossed Rs 1 lakh crore.

To be sure, farmers haven’t had an easy time, given the two droughts in 2015 and 2016. And while there have been record outputs of foodgrains in the last two years, the lack of adequate market-linkages has left them with little pricing power. The collapse in the prices of pulses, for instance, a couple of years ago, saw farmers switch to other crops. In Maharashtra, agriculture growth has been poor in the past few years, clocking in a negative 10% in 2014-15, a negative 3.2% in 2015-16 followed by 22.5% in 2016-17 and a negative growth in 2017-18. In the four years of the Modi government, overall agri-GDP grew by 2.4% per annum across the country.
However, no matter how deep the distress, the answer doesn’t lie in loan waivers because all these do is create a moral hazard and penalise the disciplined borrower. Bankers, though, get their money faster than as compared to a situation where the government, say, gave cash transfers to farmers—they might spend it somewhere else. While, ideally, no government should announce a loan waiver, it would be hard to prevent this unless it is written into the law.

While not all states have spent the total amounts set aside for the loan waivers, it would appear states were compelled to cut back on capex as a result of the expenditure on loan waivers; a recent analysis of the finances of 13 states by ICRA showed capex achievements in 2017-18 were well short of their targets. While they have budgeted for a robust 17% increase in the capital outlay for 2018-19, the combined fiscal deficit too is projected to fall to `3.7 lakh crore. Economists at the rating agency have pointed out that the improvement in the fiscal situation of states would be contingent on them achieving the budgeted revenues and also limiting the revenue expenditure. If they are unable to do so, they would need to rein in capital expenditure so as not to breach their deficit targets.

As agricultural economists have noted, the only way to address the distress in the farm sector is to usher in reforms. Ashok Gulati has, on several occasions, observed that while MSPs may be raised regularly, and it is announced for 23 commodities, these are mainly irrelevant because farmers are compensated for just a handful of crops including paddy, wheat and sugarcane. Indeed, Madhya Pradesh’s Bhavantar Bhugtan Yojana (BBY), meant to compensate farmers in the event they were unable to get the MSP, was aborted for the rabi marketing season as the government found it too expensive even though it could not cover even 25% of the harvest. Unfortunately, 70 years after Independence, politicians prefer quick fixes—which come undone as fast—to long-lasting solutions.

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