Farm Loan Waiver

Why in the News?

Key Points:

Highlights of the Study:

• Since 2014, Only about half of the intended beneficiaries of farm loan waivers announced by nine states have gotten debt write-offs.
• The poorest implementation were in Telangana (5%), Madhya Pradesh (12%), Jharkhand (13%), Punjab (24%), Karnataka (38%) and Uttar Pradesh (52%).
• Possible reasons:
  • Rejection of farmers’ claims by State Governments
  • Limited or low fiscal space to meet promises
  • Change in Governments in subsequent years

What is farm loan waiver?

• In a farm loan waiver scheme, the Centre or the state Government repays the loan to the banks on behalf of the farmers.

Challenges to loan waiver:

• Do not benefits the small and marginal farmers as only 15% of these farmers have access to institutional credit.
• Poor financial position of Banks
  • Increase in NPSs due to poor credit culture
  • Delays in loan repayment by the government
• The loan waiver in 2019 accounted for 2% of India’s GDP leading to higher Fiscal deficit and debt burden.
• Moral hazards as people would borrow loans for wasteful expenses in anticipation of loan waivers.

Way Forward:

• Enhance public investment to address structural problems such as irrigation canals, rainwater harvesting, market infrastructure, cold chain storage etc.
• Better implementation of insurance mechanism by plugging loopholes in the pradhan Mantri Fasal Bima Yojana.
• Enhancing cash support under PM-KISHAN.