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Debt Relief and Waiver Scheme Effective only if it is total
March, 05th 2008

Farmers are waking up to the devious character of the debt-waiver, which is likely to do more harm than good to the farm community, says

, explaining why differentiating between farmers may be good politics but is bad economics.

Relief for some, but what of the others?

Every year, soon after the Budget, there is a debate about the relative merits of various indices of popular reaction to the proposals. The stock market has often been discounted as being susceptible to manipulation. Popular demonstrations can also be manipulated.

This year I was witness to crowds of farmers being brought into the vicinity of 10 Janpath jointly by the Congress and the UNPA leaders. Whether the crowds were to hail Sonia or denounce her was to be decided at an appropriate time.

Finally, the crowd drove in on tractor-trolleys under the leadership of the young Deepender Hooda to felicitate the President of the Congress party.

Having slept two nights over the initial euphoria at the Debt Relief and Waiver Scheme (DRWS) of the Finance Minister, Mr P. Chidambaram, farmers are waking up to the devious character of the whole mechanism, which will do more harm than good to the farm community.

Genesis of indebtedness

There is a general agreement that the basic cause of the farmers inability to repay loans is the uneconomic character of agriculture as a whole. There is little dispute that this is a consequence of the negative subsidies imposed by the government through market interventions. It is generally conceded that the loss inflicted on the farmers far exceeds the pittance of input subsidies the government feigns to give.

The most dependable estimates of the loss caused to the farmers from negative subsidies between 1981 and 2000 is Rs 300,000 crore.

Against this, the estimate of indebtedness of the farmers, according to the Radhakrishna Committee, is only Rs1.3 lakh crore and the total quantum of input subsidies reaching the farm sector is barely Rs 80,000 crore. If one draws up a tally sheet, it is clear that the farmers owe the government nothing.

The justification of the farmers organisations demanding total waivers of all farm loans was that these loans are both illegal and immoral. Illegal because the government, which is itself a party to the contract of the loans, frustrated the honouring of the contract by the loanee farmer, which renders the contract a void. And immoral, because on the balance, the government owes much more to the farmers than the other way round.

The debt relief had to be total in order to be just and moral. There is no scope for making any differentiation between the givers of loans, such as private moneylenders, formal sector banks, and so on.

There is no basis for making any differentiation between the loanee farmers either. Differentiating between farmers who hold less than five acres is good politics but bad economics that could prove to be disastrous for agriculture in near future.

Meaningless discrimination

The smallness of the holding has very little economic significance. If agriculture is a losing proposition, the small holder should logically be a smaller loser than the larger holder. There is abundant evidence to show that the cost of production in small holdings is less and the prices obtained slightly higher. It should not be forgotten that it is not the small and the marginal farmer who made the country self-sufficient in food-grains.

The more crucial section of the farming community is the surplus producer. If Mr Chidambarams DRWS frees four crores of farmers from the burden of indebtedness and makes them eligible to receive fresh loans, this community can make very little contribution to the solution of the problem of food security, particularly in the epoch of climate change.

Similarly, there is no justification whatsoever for discriminating between loans taken from the formal and informal sectors; the indebtedness of a farmer is the integral entity.

He borrows from banks and then, to repay those loans, borrows from the moneylender. It follows that, at any given point of time, whether a farmer owes money to the moneylender or to the bank is entirely a matter of accident.

Three-fold division

Any differentiation between short-term crop loans and long-term development loans is equally invidious. The Finance Minister himself does not explicitly say that his scheme will cover all kinds of loans; however, the criteria for eligibility that he lays down effectively rule out long-term loans becoming eligible for the DRWS relief or waiver.

The Finance Minister has thus created a three-fold division amongst the farming community. It is rather remarkable that the UPA government, which does not accept the theory of creamy layer for the backward classes, is trying to use the same doctrine for farmers who are, as it is, in such desperation that they prefer death to the ignominy of living.

Even the friends of the Finance Minister would not claim that the DRWS was motivated by any serious concern for the farmers. If that were so, the Finance Minister would have first tried to correct market imperfections so that the farmers are not driven to the trap of indebtedness once again. It is exactly the opposite.

Last year, the Finance Minister imposed a ban on futures marketing of wheat and paddy. That was rather cruel blow for a nascent marketing system. This year, he has delivered an even crueller blow. Not only did he not lift the ban, but he has also imposed a tax on commodity market transactions, which could be crippling for the development of the futures market.

He could not be unaware of the fact that a liquid and buoyant futures commodity market could resolve most problems of farm credit and investment. Whatever gesture has been made by the Finance Minister has been forced by the suicides by about 200,000 farmers that amounted to a near genocide.

The Finance Minister had to do something. He, evidently, prepared the package in a last-minute hurry without carefully examining even the basic statistics relating to farm loans. The veracity of the claimed figure of the Rs 60,000 crore has been questioned in various circles. Even providing for the fact that some banks that may hope to use a part of the waiver money for face-lifting their balance sheets, the bloated figure appears to have an eye on the political advantage.

The Finance Minister has demonstrated that economists can be very astute politicians, exactly like his mentor, the Prime Minister. In one single stroke, he has managed to expose all the parties that jumped into the arena of debt relief and caused fissures in the hope of claiming the credit thereof. At the same time, he has neutralised the non-political farmers movement, which is threatening to be a potent political competitor because of the suicides of so many of farmers.

Budget 2008-09 aims at the approaching elections, not in the sense that it provides bonanzas, but because it attempts to expose the hypocrisy of all the opposition parties and tries to cause the divisions among the ranks of the farmers.

(The author is Founder, Shetkari Sanghatana and Member of Parliament, Rajya Sabha)
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