Rs.3.12 trillion written off as farm loans since 2008
NEW DELHI: A report prepared by an internal Reserve Bank of India (RBI) working group on improving credit flow to the agricultural sector and submitted to RBI Governor Shaktikanta Das on September 6, 2019 has revealed that Rs 3.12 trillion of public money that distributed as farm loans have been enacted by both central and various state governments over the past 11 years. The RBI had indicated in its report that these waivers were for political reasons, as indicated by the timing of the announcements (all occurred in election years) of the waivers of the stated loans.
The report, titled “Report of the Internal Working Group on Farm Loan Review,” found that from the time of the mega farm loan waiver made by the UPA government in May 2008 to September 2019, when 10 other states cut farm loans Rs. 3.12 trillion in agricultural loans were written off as a result of the waivers granted.
According to the RBI’s study, the first major peasant loan waiver program of this decade was implemented in May 2008 in the election year budget, where then Finance Minister P. Chidambaram announced a loan waiver of Rs.71,680 crore, or Rs.71 trillion at least 3 Millions of creditors will receive a full waiver and at least 60,000 farmers will receive a “rescheduling” of their loans.
This waiver has been described by experts as a step taken in anticipation of the upcoming 2009 general election, and it related to loans made by Scheduled Commercial Banks (SCBs), RRBs, credit unions (both urban and rural) and local banks were awarded. It covered outstanding direct agricultural loans (including short-term loans and investment loans) disbursed between March 31, 1997 and March 31, 2007 and remaining unpaid on February 29, 2008, with no ceiling on the amount repayable.
Congress benefited from this massive loan waiver program and, despite a strong opposition from the incumbent and the massive security breaches identified during the Mumbai attack, was able to return to power in the May 2009 general election.
The success of this “scheme,” as evidenced by data provided by RBI in its report, prompted other state governments to deploy the same in their own state.
According to the RBI report, the scale of agricultural loan foregoneness has seen an unprecedented increase since 2014. And since then, up to September 2019, 10 states wrote off agricultural loans totaling Rs.2.4 trillion, or Rs.2,40,000 (1.4% of 2016-17 GDP at current prices).
The RBI has stated in its report that this practice of forgoing farm credits, although marketed as something that helps the farmer, in reality harms the interests of farmers in the medium and long term and is mainly based on political considerations.
“Notwithstanding the evidence of deficit rainfall conditions and the downturn in agricultural commodity prices in loan waiver announcements, the timing of loan waiver announcements during election cycles rather suggests the political expediency of such waiver programs that do not really address long-term problems in agriculture. The 1990 and 2008 federal loan waiver programs were announced by the Union government ahead of the 1991 and 2009 general elections, respectively. Likewise, eight out of ten loan waiver announcements since 2014 have been made within 90 days of their respective states’ election results,” said the RBI report, which was authored by a seven-person team.
The report went on to say that because of the practice of forgoing loans, “borrowers are strategically defaulting in anticipation of future bailouts and banks are beginning to reallocate credit to lower-risk borrower segments.”
The following are the details of agricultural loans that the 10 states mentioned in the report have waived since 2014: Andhra Pradesh (Rs 240 billion; 2014-15); Telangana (Rs 170 billion; 2014-15); Tamil Nadu (Rs 52.8 billion; 2016-17); Maharashtra (Rs 340.2 billion; 2017-18); Uttar Pradesh (Rs 363.6 billion; 2017-18); Punjab (Rs 100 billion; 2017-18); Karnataka (Rs 180 billion; 2017-18); Karnataka (Rs 440 billion; 2018-19); Rajasthan (Rs 180 billion; 2018-19); Madhya Pradesh (Rs 365 billion; 2018-19); Chhattisgarh (61 billion rupees; 2018-19).