‘Farm loan waivers will benefit only those who owe banks. What about the rest?’

Economist, author and professor Arun Kumar weighs in on the unrest that has been a long time brewing.

ByKshitij Malhotra
‘Farm loan waivers will benefit only those who owe banks. What about the rest?’
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On June 11, after more than 10 days of protests by farmers, the Maharashtra government announced it would waive all farm loans. Farmers demanding loan waivers have been agitating in neighbouring Madhya Pradesh as well, where the protests turned violent resulting in the death of five farmers in a police shooting.

In light of these developments, Newslaundry spoke to economist and former professor at the Centre for Economic Studies and Planning, Jawaharlal Nehru University, Arun Kumar on the reasons behind demands of farm loan waivers, the impact of demonetisation on the agrarian economy and the “asymmetry” in response to farm loans and corporate loans. You can listen to the full conversation or read the highlights below.

Why are farmers demanding loan waivers?

Arun Kumar [AK]: In a sense what has happened is that in the farming sector, they [farmers] are claiming that they are not getting the remunerative price, which will make it viable. Now if the situation is not viable and if they take a loan, then repayment of loan becomes difficult.

A lot of young farmers, they want to quit and come into the towns, they want to get proper jobs. This jobs crisis is adding to the crisis in the lives of the farming community. Because they find they’re not able to get a proper income in spite of doing hard work. They’re not able to get the jobs. So there’s a lot of frustration. The underlying basis of why this political demand [farm loan waivers] is coming up is a lot of frustration in the rural areas, in the farming community, lot of frustration among the youth in these areas.

Who will benefit from farm loan waivers?

AK: Now the loan can be taken either from the banks, the formal banks, or from the informal sector, the local landlord, the local sahukar. So this farm loan waiver will only pertain to the formal structure of banks, but not to the sahukars and other such entities that you may get the informal loans.

So possibly what will happen is that there will be some kind of cut-off, that if your loan is up to this much amount, then there will be a farm loan waiver but if the loan is above certain amount then it can be presumed that you are a big operator and then maybe you will not get relief. So here also there could be some disparity possible for small and the marginal farmers, [who are] maybe taking [loans] mostly from the informal sector, not from the formal sector. And the bigger farmers may be taking [loans] more from the formal sector and not from the informal sector. So if the formal sector loans are given relief, in terms of loan waiver, then it may benefit the better off ones more than the ones who are smaller in size of operation.

The role of demonetisation in the current farmer unrest

AK: Demonetisation affected in two ways. One was probably the cost of cultivation was higher, because of the delay in planting in the north India, the delayed inputs and higher inputs etc. The second was the drop in demand because of demonetisation which resulted in the prices of many of these commodities falling very sharply. So because of that income got affected. Now therefore it may not be the case that all farmers lost income because of demonetisation but if a substantial proportion of them lost income because of demonetisation then there will be a protest that would take place. And that will get generalised even to the farmers that are cultivating say wheat and paddy, because they have always been having this feeling that they are being cheated.

Government response to farm loans vs corporate NPAs

AK: Last year there was a report that Rs 1.14 lakh crore [of NPAs] were written off. They are sensitive to it because it involves tens of lakhs of crores. Here [farm loans] it’s small sums of money and they feel they can browbeat these farmers into repaying etc. Only when they get together, they get a loan waiver. So there’s a clear asymmetry between the way the loans of the rich are treated and how they’re continued for years – like with Kingfisher, they kept rolling on the loan, giving more loans so it doesn’t collapse – they would not do that for the farmers, until farmers protest.

“We have an urban bias and an industry bias in our policy. You see, these are powerful lobbies. A lot of the loans that have gone bad are because of wrong policies which the government followed and then they pushed those industries to develop, they got them cheap loans. When the industries were in trouble, they pushed the banks to give more loans. There’s a lot of crony capitalism in that too. So there’s a combination of policy problem, a problem of economic downturn and crony capitalism-all three coming together. And that has been handled with kid gloves as compared to what the loans of the farmers are.”

The author can be contacted on Twitter @Kshitijmalhotra

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