Assembly elections are scheduled in eight states next year. Considering the competitive populism policy followed across some states, more and more states may now decide to go for a farm debt waiver scheme. However, research shows that loan waiver never become a solution to farmer distress, says a report.
In the research report, State Bank of India (SBI), says, "... benefits of loan waiver do not reach to the targeted person due to various reasons like lack of formal credit, and identification of beneficiaries. Past experience suggests that States like Tamil Nadu, Maharashtra, Karnataka, Uttar Pradesh, Jammu & Kashmir (J&K), Punjab, Chhattisgarh, Andhra Pradesh, and Telangana who have in the recent past announced their own farm loan or debt waiver schemes are not successful in implementing it properly."
Instead of loan waiver, there is a need to align non-performing asset (NPA) classification norm for agri cash credit loan exactly at par with other segments, SBI says, "If we align the NPA classification norms for kisan credit card (KCC) and crop loans at par with other segments, we would be thus able to save the aforesaid amount from being classified as NPAs. It would not only help the farmers but would also help the banks in saving capital on account of provisions made towards these otherwise avoidable NPAs."
As per the latest data from Reserve Bank of India (RBI) the agriculture NPA was Rs60,200 crore as at March 2017. Applying a threshold figure, NPAs on the industry level due to KCC and crop loan would be around Rs27,700 crore for March 2017. "If we assume that the March 2017 figure of Rs60,200 crore would have moved up to Rs80,000 crore as per trends, the NPA ratio of KCC and crop loan would be Rs36,800 crore."
"It would be in the benefit of the bankers as well as the farmers, if the farmer is given renewal or enhancement based on deposit of applicable interest to the bank and the submission of periodic stock statements, which may be linked to the yearly crop cycles, especially when the bank is satisfied with the farmer in terms of his/her land holding or paying capacity," SBI says.
As per the existing norms of asset classification for agriculture advances, in case of an agriculture cash credit account a farmer has to repay the entire outstanding (principal along with interest) to seek fresh loans from the banks unlike other segments of cash credit business where if the borrower has cleared interest payments, he/she would be eligible for enhancement/ renewal.
This makes the farmers woes aggravated. Say for a loan of Rs1 lakh, unless the farmer repays the bank this amount along with the applicable interest, he/she would not be able to either roll-over or become eligible for fresh loan or enhancement.
"For a marginal farmer, it becomes difficult to lock his entire crop sales proceeds with the bank (till the loan is processed) to become eligible for fresh loan. It may also be noted that a typical cash credit account for any business apart from agriculture, requires only the interest to be serviced and the periodic submission of stock statements to remain as a performing cash credit account," the report from SBI says.
The income from the agriculture depends upon the harvest of the crop. The marginal and small farmers do not have any other source of income other than the produce, which is sold in the market to pay for their loan dues and to meet their subsistence expenses.
Talking about loan waiver, SBI says, the eight states, who are likely to go for it have only two options to fund the scheme, borrow from the market or reduce capital expenditure. "We believe, given the lack of limited fiscal space available to states in terms of market borrowings as per the 14th Finance Commission recommendations, states have to cut back significantly on capital expenditure, even after incrementally borrowing from the market. Our estimate shows that states like Madhya Pradesh, Rajasthan, Assam, Chhattisgarh and Karnataka will have to cumulatively cut Rs78,453 crore in capital expenditures, if incremental revenue measures are not announced," the report says.
The problem, according to SBI is that since such cut in capital expenditure cannot happen in a single year, it will be spread over a period of time and hence settlement will also be delayed. It says, "This will only imply stuttering of credit flow as the relevant account will not be eligible for new loans. This will also imply farmers accessing informal sector for loans and hence higher indebtedness and may be another round of loan waivers."
The amount so waived should be counted as election campaign expense and MUST be paid for by the party or the person who promised the loan waiver.
We the tax payers are already footing unnecessary expense of the lavish lifestyle of the so called leaders. They (and their goons too) fly around in Air India (do not pay or pay minimal, that to not from their pocket).
Most of them do not do their home work.
They disrupt working of the sessions that are few anyway to start with.
They pocket all the allowances, do not pay electricity or phone bills (after exceeding the free quota).
They are more interested in personal uplift rather than of the country.
They occupy residence illegally even when not elected and promise the moon at the time of election. The gullible get carried away and vote those cheaters to be the leader.
Again to be fooled for next few years.
If we do not understand this, we deserve such leaders.
The cost is to remain a poor and developing country in perpetuity.
That is the way the rules are framed by the selfish leader who was interested in a dynastic rule by one family.
The law is interpreted to suit the need of such leaders and only in letter (that too as and when it suits them).
The spirit of the law is intentionally murdered many times over. (Reservation was to be for 10 years, now it looks like it is for perpetuity or annihilation).
Mera Bhaarat Mahan. Really!?
May be in terms of the folly of the people India in whom we elect.