Business Today

Farming The Future

Besides burdening state budgets and banks, loan waivers don't solve the farmer's root problem
twitter-logo Prosenjit Datta   New Delhi     Print Edition: January 27, 2019
Farming The Future

The Modi government has apparently decided not to fall prey to temptation and outdo the Congress in announcing and initiating even bigger loan waivers. (Strictly speaking, it also cannot do so because agriculture is a state subject).

Farmer loan waivers are no solution. Apart from the moral hazard it creates - people may not repay if they expect a loan waiver announcement, and people who have paid dutifully may feel cheated - it is also no solution. Besides burdening state budgets and banks, loan waivers don't solve the farmer's root problem. One idea for farmer distress the government is toying with currently is to offer some sort of minimum income guarantee to the poor farmers or compensating those who have not managed to sell at the minimum support price (MSP) with cash transfers for the difference.

This is a step forward from the loan waiver, but again it is not the solution. Essentially, farming needs to be remunerative for the marginal farmer and many structural reforms are necessary for that to happen. Any other solution can be a short-term band-aid, but will do nothing to alleviate the farmer's real problems.

@prosaicview

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