NEW DELHI: A report prepared by an internal working group of the Reserve Bank of India (RBI), on how to improve the credit flow to the agriculture sector, which was presented to RBI Governor Shaktikanta Das on 6 September 2019, has revealed that Rs 3.12 trillion of public money distributed, as farm loans, has been waived off by both the Central government and various state governments in the last 11 years. The RBI in its report had stated these waivers were happening due to political reasons as was evident from the timing of the announcements (all happened in election years) to waive off the loans indicated.
The report titled “Report of the Internal Working Group to Review Agricultural Credit”, has stated that from the time of mega waiver of farm loans that was undertaken by the UPA government in May 2008 and till September 2019, when 10 other states gave farm loan waivers, a massive Rs 3.12 trillion of farm loans have been written off.
As per the RBI’s study, the first major programme of waiving off farmer loans in this decade was undertaken in May 2008 in the election year budget in which then Finance Minister P. Chidambaram announced a loan waiver of Rs 71,680 crore or Rs 0.71 trillion which includes at least 3 crore creditors getting a full waiver and at least 60 lakh farmers getting their loans “rescheduled”.
This waiver was described by experts as a step taken in view of the approaching 2009 general elections and it covered loans given by Scheduled Commercial Banks (SCBs), RRBs, Co-operative Credit Institutions (both urban and rural) and local area banks. It covered outstanding direct agriculture loans (including both short-term and investment loans) that were disbursed between 31 March 1997 and 31 March 2007 and continued to remain unpaid as on 29 February 2008, with no upper limit on the eligible amount for waiver.
The Congress benefited from this massive loan waiver scheme and despite a strong anti-incumbency and the massive security lapses that were seen during the Mumbai attack, it was able to return to power in the May 2009 general elections.
The success of this “scheme”, as is evident, from the data presented by the RBI in its report, pushed other state governments to employ the same in their own state.
According to the RBI report, the scale of farm loan waivers started witnessing unprecedented increase from 2014. And since then, until September 2019, 10 states wrote off farm loans aggregating Rs 2.4 trillion or Rs 2,40,000 crore (1.4% of 2016-17 GDP at current prices).
The RBI in its report has stated that this practice of waiving off farm loans, though marketed as something that helps the farmer, in reality, impacts the farmers’ interest in the medium and long term and is mostly based on political consideration.
“Notwithstanding the evidence of deficit rainfall conditions and downswing in agriculture produce prices in announcements of loan waivers, the timing of loan waiver announcements during election cycles, points to more of political expediency of such waiver programmes that do not really address long-term issues in agriculture. The nationwide loan waiver programmes of 1990 and 2008 were announced by the Union government in the run-up to the parliamentary elections of 1991 and 2009, respectively. Similarly, eight out of 10 loan waiver announcements since 2014 were made within 90 days of their respective states’ election results,” stated the RBI report, which was authored by a seven-member team.
The report further stated that due to the practice of loan waivers, “borrowers choose to default strategically in anticipation of future bailouts, and banks start reallocating lending to lower risk borrower segments”.
The following are the details of farm loans waived off by the 10 states mentioned in the report since 2014: Andhra Pradesh (Rs 240 billion; 2014-15); Telangana (Rs 170 billion; 2014-15); Tamil Nadu (Rs 52.8 billion; 2016-17); Maharashtra (Rs 340.2 billion; 2017-18); Uttar Pradesh (Rs 363.6 billion; 2017-18); Punjab (Rs 100 billion; 2017-18); Karnataka (Rs 180 billion; 2017-18); Karnataka (Rs 440 billion; 2018-19); Rajasthan (Rs 180 billion; 2018-19); Madhya Pradesh (Rs 365 billion; 2018-19); Chhattisgarh (Rs 61 billion; 2018-19).