States drag their feet on farm loan waivers

The government of Tamil Nadu announced in 2016 a loan exemption program of 5,318 crore for small and marginal farmers who had taken out loans from cooperative banks as of March 31, 2016.

After issuing a loan forgiveness notification in May 2016, it took nearly six years for the government to keep its promise. Until September of last year, ₹ 4,529 crore had been canceled and the state only reached the end goal before the next state election.

Political movement ?

But Tamil Nadu isn’t the only state dragging its feet on loan waivers. The governments of Telangana and Andhra Pradesh announced loan waiver programs in 2014, and continued the programs until last year. The governments of Uttar Pradesh and Maharashtra announced loan exemption programs in 2017 ahead of state elections, and their execution is still ongoing.

“The timing of loan waiver announcements during election cycles further indicates the political desirability of these waiver programs which do not really address the long term problems in agriculture. The national loan exemption programs of 1990 and 2008 were announced by the Union government in the run-up to the legislative elections of 1991 and 2009, respectively. Likewise, eight out of ten loan exemption announcements since 2014 have been made within 90 days of election results in their respective states, ”says RBI report on internal credit review task force. agricultural.

Data provided by NABARD and the states to the central government shows that after making popular announcements of loan forgiveness, state governments fail to push for its speedy execution and farmers fail to obtain immediate relief.

The RBI report adds that the instances and magnitude of farm loan waivers have seen an unprecedented increase since 2014-15. This increase in loan waivers is driven by state governments – 10 states have announced loan waivers totaling 2.4 lakh crore since 2014-15.

This is significantly higher than the two nationwide loan exemption programs – the 10,000 crore exemption program in 1990 and the 52,500 crore program in 2007-08.

Delayed execution

As the much-talked-about agricultural loan forgiveness programs do not materialize on the ground, the loan burden multiplies as struggling farmers opt for new loans, says Pandurang Chavan, a farmer. “The moment the state government renounces the loan, struggling farmers take out more loans due to poor harvests, drought or natural disasters. Running loan forgiveness programs immediately could help farmers, but banks and government baboo create all kinds of obstacles for farmers to benefit from loan exemption programs, ”he added.

Data from the RBI shows that, cumulatively, for all states, the share of agricultural loan forgiveness in total state government spending increased significantly in 2017-18 and 2018-19.

This could potentially depress state government capital spending in agriculture. In addition, the postponement of budgetary provisions to cover expenses related to the announced loan exemptions leads to an increase in NPA levels. Therefore, the onus is on banks to make new loans, according to the RBI report.

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