Are farm loan waivers really the answer to the agrarian crisis?

April 26, 2017
By Rang De Team

In April, the Indian Meterological Department (IMD) predicted a ‘normal monsoon’ in 2017. The markets responded positively to the news and the nation heaved a collective sigh of relief. It was not just relief from the scorching summer heat that the rains were expected to bring but an alleviation of the agricultural crisis.

Eight states in the country — Kerala, Karnataka, Tamil Nadu, Andhra Pradesh, Madhya Pradesh, Uttar Pradesh and Uttarakhand — consisting of the biggest to smallest states, spanning the entire geographical length of the country, have been declared drought affected by the central government. The crops in many areas have failed and the farmers, unable to repay their debts, are in deep distress.

In response to the crisis, the state governments introduced relief measures; the recently elected UP government waived agricultural loans of small and marginal farmers and the state government in Tamil Nadu waived farm loans taken by farmers from cooperative banks. However, these waivers have opened up a debate about the efficacy of these measures in alleviating the agricultural crisis.

The debate was sparked off by SBI Chief Arundhati Bhattacharya’s statement about farm loan waivers upsetting credit discipline. After the UP government announced a waiver of loans to the tune of Rs 36,359 crore, the Chief of the Reserve Bank of India, Urjit Patel, declared the farm loan waiver schemes a “moral hazard” as it “undermines an honest credit culture [and] it impacts credit discipline”. Farm loan waivers ought to be avoided, Patel said, as such moves “could eventually affect the national balance sheet”.

Bhattacharya and Patel are not alone in their assessments. Multiple editorials and newspapers have pointed out the problems with loan waivers. Writing in Livemint, Tamal Bandyopadhyay said that credit indiscipline — when farmers stop making payments in existing debts in expectation of future write-offs — affects cooperative banks the most. These banks, lending out their entire deposits for agricultural loans, often find it difficult to remain in business.

A photo from rural Khurda from an area where Rang De loans benefit farmers. We regularly visit rural areas and stay in close contact with our communities

Debts and bad loans, seen as the main cause for farmer distress, are more akin to symptoms than the genesis of the annual agrarian crisis. As Tamal Bandhyopadhyay and R Sukumar argue in separate articles, the cause of the crisis lies as much with highly regulated agricultural markets, inadequate crop insurance coverage, unscientific pricing of agricultural produce and the rapid depletion of local resources as it does with debt. Though positive steps have been taken by the central government to address these issues, these efforts are still some way from fruition.

Yet, such academically sound arguments are hard to digest when faced with the very real distress in the Indian countryside.

Over the past month, farmers from Tamil Nadu have been protesting with the skulls of dead farmers and with rats at the heart of the National Capital in Jantar Mantar, New Delhi. The protests, the farmers say, are symbolic of the abject and pathetic state they have been reduced to.

Shivakumar, a smallholding farmer in Chandagalu village, Mandya district, in Karnataka, is one of the million of farmers worried about the future. “I harvest 120–130 quintals of paddy every year but this year the harvest was just 30 quintals,” he told us when we had visited Mandya earlier this year. With a Rs. 2.5 lakh agricultural loan looming over his head, Shivakumar was unsure about sowing the rabi crop.

Karnataka has faced consecutive years of drought and in many districts like Mandya, it is no longer possible to carry out farming throughout the year

Mandya is a relatively prosperous district with the waters of the Cauvery making farming possible throughout the year but with Karnataka reeling under a drought for three consecutive years, this is no longer a possibility.

Speaking about the agrarian crisis and farm loan waivers, Devinder Sharma, in an article in The Wire, pointed out that agricultural loans formed just 1% of all Non-Performing Assets (NPAs) in nationalised banks; he claimed that farm credit extended by the government was being availed by companies and middle men offering agricultural services.

Devinder Sharma was making a case for the farm loan waiver by comparing its cost with the corporate loan write-off but he only partially addressed the central issue of the agrarian crisis.

More than a faulty design of relief schemes due to which small and marginal farmers did not benefit from them, the problem also lies with the lack of financial inclusion and empowerment.

The small and marginal farmers who have borrowed money from informal sources often do not find benefit from farm loan waivers

To a small farmer in a village in India’s countryside, the lack of access to formal credit is as debilitating as the drought and failure of his crops. Without knowledge of various government and financial schemes, he is at the mercy of moneylenders and other informal sources of credit. As a result, he also does not benefit from farm loan waivers which only cover credit from formal sources or any other government schemes.

Calling the farm loan waiver “an immediate response to an emergency situation,” a recent editorial in the Economic and Political Weekly stated:

“In fact, loan waivers do little to relieve the indebtedness of the most vulnerable farmers who are either landless or possess smallholdings. These farmers are not considered creditworthy, have no access to institutional credit and are entirely dependent on usurious moneylenders. Loan waivers do not alleviate agrarian crises that have deep roots in India’s economy, including uneven access to subsidies, skewed landownership patterns and a degeneration of government supported agricultural extension programs.”

Farm loan waivers are a necessary but stopgap measure that do not address the issue at hand. Unless we take concrete efforts towards scientific agricultural pricing, ensuring crop insurance coverage for all farmers and offering them low-cost credit from formal sources, the spectre of agricultural crisis is likely to haunt us for a long time.

Rang De is a non-for-profit organisation working to financially empower rural communities across India. Do join us in our fight against poverty by being an alternative to costly, informal loans at Not ready to make your first social investment? Join our 12,000+ strong family by signing up here.

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