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Farm Loan Waiver

This article will cover detailed information about Farm Loan Waiver

Why in the News?

A recent study by SBI flags poor implementation rate in Telangana, M.P, Jharkhand, Punjab, Karnataka and U.P.

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.