Economy
Is India faced with a Rs3.1 lakh crore farm-loan waiver? And will it help?
As demands for farm-loan waivers grow across Punjab, Haryana, Tamil Nadu, Gujarat, Madhya Pradesh, and Karnataka -- after Uttar Pradesh and Maharashtra wrote off loans worth Rs 36,359 crore and Rs 30,000 crore, respectively -- India faces a cumulative loan waiver of Rs 3.1 lakh crore, or 2.6 per cent of its GDP in 2016-17.
 
A waiver of this scale could pay for the 2017 rural roads budget 16 times over or pay for 443,000 warehouses or increase India's irrigation potential by 55 per cent more than the achievements of the last 60 years.
 
While such waivers could provide succour for 32.8 million indebted farmers, an IndiaSpend analysis of the impact of previous farm-loan waivers indicates such bailouts are band-aids of uncertain efficacy and do not address a deeper malaise gripping the agrarian economy.
 
Over nine years to March 2017, the central and state governments waived Rs 88,988 crore in loans to 48.6 million farmers. The nationwide Rs 52,000 crore loan-waiver announced by the United Progressive Alliance (UPA) in 2008 occupies the bulk of this figure.
 
The waivers were primarily meant to discourage suicides by farmers, apparently caused by widespread indebtedness. However, our analysis shows this had little or no impact on suicide rates, probably because 32.5 per cent on average, or 79.38 million, small and marginal farmers across India (with farm holdings of less than 1 to 2 hectares in size) rely on informal sources of credit.
 
Meanwhile, loan waivers have led to a rise in the non-performing assets (NPAs) of banks, especially public-sector banks, and are likely to have a significant bearing on the state and national fiscal deficits. In 2013, agricultural NPAs accounted for about 41.8 per cent of "priority sector" (which also comprises micro and small enterprises, affordable housing, and student loans) NPAs in public and private banks -- up from 25 per cent in 2009, according to a 2015 study published in the International Journal of Science and Research (IJSR).
 
For example, Maharashtra's Rs 30,000 crore farm-loan waiver for small and marginal farmers will raise the state's fiscal deficit to 2.71 per cent, which is three-fourths (1.18 percentage points) higher than the budgeted deficit of 1.53 per cent of the GSDP for the current financial year, according to this 2017 report by ratings agency India Ratings and Research (Ind-Ra). Uttar Pradesh's Rs 36,359 crore farm-loan is 2.6 per cent of its GSDP. The 14th Finance Commission says fiscal deficits should not exceed 3 per cent of state budgets. 
 
About 85 per cent of all operational farm holdings in India are less than two hectares in size. Owners of these shrinking farms find it difficult to use modern machinery and are often too poor to afford farm equipment. Manual labour increases costs, and size and output further limits access to loans and institutional credit.
 
On average, a third of Indian small and marginal farmers have access to institutional credit. This means no more than 10.6 million of 32.8 million small and marginal farmers in the eight states demanding loan waivers could benefit from debts being written off.
 
The other 22.1 million farmers depend on moneylenders and relatives for borrowings, according to the 2011 agricultural census and the National Sample Survey Office's 2013 situation assessment survey of farm households, the latest available data.
 
In 2007, before the UPA's loan waiver for 30 million farmers across 18 states, 16,379 Indian farmers committed suicide, according to National Crime Records Bureau (NCRB) data.
 
A quarter of these suicides (4,238) were reported from Maharashtra. In 2009, the year after the loan-waiver was announced, the state government promised an additional waiver of Rs 6,208 crores. This led to a drop in farm suicides in India's richest state; but in 2010, suicides rose again, by 6.2 per cent. By 2015, seven years after the Centre's bail-out, Maharashtra recorded 4,291 suicides, its highest rate ever, accounting for 34 per cent of such deaths nationwide, according to the latest available NCRB data.
 
After the first major farm-loan waiver of Rs 10,000 crore in 1990-announced by a Janata Party government led by then Prime Minister V.P. Singh -- it took almost nine years for banks to recover.
 
Since the 2008 farm-loan waiver, agricultural NPAs rose three times, from Rs 7,149 crore in 2009 to Rs 30,200 crore in 2013, according to a 2015 study.
 
These NPAs affect the credibility of lending institutions. Shares of banks fell four per cent after Maharashtra announced its loan waiver. Further, with public-sector banks (PSBs) accounting for the major share of farm credit - 52 per cent in Maharashtra, followed by 32 per cent from co-operative banks and 12 per cent in private banks -- these PSBs are "more vulnerable", said a 2017 Kotak Institutional Equities report.
 
Indebtedness is a symptom and not the root cause of the farm crisis, according to a 2007 expert group report on agricultural indebtedness, chaired by economist R. Radhakrishna. The average farm household borrowing has not been "excessive", the Radhakrishna report said. The factors contributing to the farm crisis are "stagnation in agriculture, increasing production and marketing risks, institutional vacuum and lack of alternative livelihood opportunities", the report said.
 
It is clear a loan-waiver alone cannot solve India's agrarian crisis. The data reveal a more-than-necessary focus on agricultural credit, as other fundamental problems remain unaddressed.
 
Over a decade to 2014-15, as institutional credit in agriculture grew 547 per cent, from Rs 1.25 lakh crore to Rs 8.45 lakh crore, rural road construction -- which increases access and boosts agricultural income and productive employment -- grew just 10.5 per cent.
 
Roughly 7 per cent of total grain output, 10 per cent of seeds and between 25 and 40 per cent of fruits and vegetable -- overall a third of farm harvest spoils -- are wasted every year because there isn't enough storage and supply-chain infrastructure.
 
Irrigation, increasingly vital in an era of climate change, has failed Indian farming. No more than 47.6 per cent of India's farms are irrigated, and the decadal growth in net-irrigated area to 2010 was 0.3 per cent, according to Ministry of Agriculture data.
 
These low investments eventually make farming expensive and prices volatile.
 
To curb the impact of market fluctuations, Chief Economic Adviser Arvind Subramanian recommended improving the "procurement capacity" -- or money available to buy farm produce -- of states, lifting export bans, raising stock limit and including "risks and externalities" while framing the minimum support prices (MSP) for various produce. 
 
 
Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.

 

User

COMMENTS

jaideep shirali

5 days ago

The government's intention, rather that of the political class in this whole mess, is revealing. It would be far cheaper to improve irrigation, better logistics, have realistic prices that allow for a minimum profit level, set up cold storage chains for lower wastage and better prices for both farmer and consumer. But our politicians are worried that these measures would actually make our farmers smarter and better off. Hence the once in 5 years or less write offs with public money, because obviously no politician pays from his own pocket. It also keeps the farmers dependent on the government and hence less likely to oppose it

Simple Indian

2 weeks ago

With farm-loan waivers State Govts are trying to appease farmers rather than resolve the deeper malaise in our agrarian economy, as the article mentions. After all it's the middle-class taxpayers who will eventually have to compensate for such Govt largesse, through higher taxes. If the Govt robs Peter to pay Paul, it can always rely on Paul's support. This seems to be the thinking behind such waivers. But, some decisions can be both politically and economically disastrous, as we will know in 2019.

SuchindranathAiyerS

2 weeks ago

Nothing has changed from the days of the Hilton Young Currency Commission and the Radcliffe Committee Report other than the composition of the aristocracy wrought by the sham of a plagiarized "Animal Farm" Constitution.

How to strengthen agriculture: (1) Provide infrastructure: Last mile transportation, electricity, irrigation, transportation for produce including cold storage. (2) Tax agricultural income. Provide insurance cover for crop failure based on last five years agricultural income tax. (3) Ban chemical fertilizers, pesticides, ripeners etc. (4) Ban all agricultural "technologies" that are not natural.(5) avoid all other government interventions other than those that strengthen the farmers and their families such as primary and technical education and health services.

Telecom operators suggest creating data, voice floor price to regulator
At a time when the telecom industry has witnessed a lot of free data and voice offers, telecom service providers on Thursday suggested to the regulator the idea of creating a floor price for voice and data.
 
"The operators today have discussed the idea of creating a floor price for voice and data services. The rationale behind it was no operator can offer data and voice services below that price," R S Sharma, Chairman, Telecom Regulatory Authority of India (TRAI), said here while briefing the media after a two-and-a-half hour meeting with seven telecom operators, who discussed the dwindling health of the sector with the regulator.
 
Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.

User

COMMENTS

Simple Indian

2 weeks ago

This is a clear case of cartelization of the Telecom sector by certain operators. For years, the Airtel-Vodafone-Idea cartel has tried to dominate the sector through formal and informal tie-ups to keep new competitors at bay. Reliance Jio is too big for this cartel to bulldoze into submission, hence it's trying its best to counter Jio with such proposals with malicious intentions. Telecom services, like all other public services offered by private sector firms, ought to be market-driven. Hence, if an operator is able to offer voice & data at a certain price, it implies that it is financially viable for it to do so. TRAI should welcome such market-driven pricing, instead of setting an artificial 'floor-price' for telecom services, as this is one sector which sees adoption of new technology the fastest. But, unfortunately, most old telecom operators like Airtel-Vodafone-Idea refuse to invest more in new technology to improve their service levels, and perhaps increase their operational efficiency, with cost-savings over time. Hope TRAI will not entertain the consumer-unfriendly proposals from Telecom firms, and lets the market determine the price of telecom services.

MahaRERA in Action: Homebuyers should cheer

The Maharashtra Real Estate Regulatory Authority (MahaRERA), the watchdog for the Real Estate (Regulation and Development) Act 2016 (RERA), is finally on the move. The Authority penalised Chembur-based property broker Sai Estate Consultants for advertising unregistered residential project.

The authority has put a fine of Rs1.20 lakh for the violation and has asked the broker to stop advertising any unregistered project immediately. They have also been directed to put their MahaRERA registration number on their hoardings.  

The MahaRERA has taken elaborate steps to ensure that every type of violation of regulations committed by the builder carries a penalty. For example, non-registration under RERA by the builder holds him “liable to a penalty which may extend up to ten per cent of the estimated cost of the real estate project”, where the penalty would be increased on a daily basis. “On continued violation, he shall be punishable with imprisonment for a term which may extend up to three years or with fine which may extend up to a further ten per cent of the estimated cost of the real estate project, or with both.”

Moneylife Foundation recently conducted an event to educate the general population on the implications of RERA. The speaker for this event was Mumbai Grahak Panchayat's head of advocacy and a prominent consumer rights activist, Varsha Raut.

Interestingly, the action under MahaRERA against Sai Estate Consultants, was initiated on the basis of a complaint filed by a group led by Ms Raut’s on a misleading advertisement by them.

“RERA is a gift to the consumer. Now the ball is in our court and we can make the most out of it by keeping a watchful eye,” Ms Raut says. But, she warns, “People should not be hasty in purchasing flats. Wait for two months (which is the time given for registration under RERA), and if you see any malpractice or anything suspicious then one must not hesitate in approaching the Mumbai Grahak Panchayat or just complaining to MahaRERA.”   

Ms Raut also emphasised that the least people could do was to educate themselves about the Act. One of the most important points that was highlighted during the event was that RERA will remain effective for the builder till the buyers of the property receive their completion certificate.

Ms Raut explained the difference between the occupation certificate (OC) and completion certificate (CC). An occupation certificate is a document issued to certify a building's “compliance with applicable building codes and other laws” indicating that the flat is in a suitable condition for occupancy. A completion certificate attests that the new building is “constructed and completed” according to all the regulations set by the municipal authorities.  

Usually, the CC is confused with the ‘Commencement Certificate’ (which is also necessary) and many buyers are not even aware of the completion certificate document. This provides a loophole to the builders as the completion certificate is a mandatory legal document, which certifies that the construction has not violated any of the rules laid down by the authorities.

Ms Raut urges people to not immediately occupy their flats and to wait till all three documents, commencement certificate, occupation certificate and completion certificate are in their possession.

“There is a difference between a consumer and a customer. A customer does not necessarily have knowledge about their rights, but a consumer is supposed to be aware and should fight for their rights,” she added.





 
 

User

COMMENTS

Simple Indian

2 weeks ago

While the article speaks glowingly of the new RERA Rules of Maharashtra, there are many flaws in it, when it comes to protecting the home-buyers' rights. In fact, the draft RERA Rules circulated by the Govt of Maharashtra few months back was heavily in favor of Real Estate Developers (RED) and after much protest by consumer rights groups, it was toned down to its present form. For instance, I don't see why only 70% of money collected from home-buyers should be kept in an escrow account and not the entire 100% ? Why should a RED be allowed to siphon / divert funds collected from one Project to develop another ? This is what is happening even today, and the situation may not change much even after RERA is fully in force post 31-Jul-2017. There are similar provisions in RERA Rules which benefit REDs, who are obviously far more 'important' to the politicians than home-buyers are. The Central RERA Rules are more stringent and very few States have adopted them in toto. Considering the strong RED lobby in Maharashtra, it's expected of Govt to draft the Rules to favor REDs.

REPLY

Sucheta Dalal

In Reply to Simple Indian 2 weeks ago

May be you should look at what Ms Varsha Raut said -- yes the previous drafts as well as the previous act were pro builder. It is people like Ms Raut who have fought hard to ensure a fair deal for consumers. And, as she says, it is now worth a watch.

We are listening!

Solve the equation and enter in the Captcha field.
  Loading...
Close

To continue


Please
Sign Up or Sign In
with

Email
Close

To continue


Please
Sign Up or Sign In
with

Email

BUY NOW

The Scam
24 Year Of The Scam: The Perennial Bestseller, reads like a Thriller!
Moneylife Magazine
Fiercely independent and pro-consumer information on personal finance
Stockletters in 3 Flavours
Outstanding research that beats mutual funds year after year
MAS: Complete Online Financial Advisory
(Includes Moneylife Magazine and Lion Stockletter)