How to help ease farmers' distress without a loan waiver?

Key Highlights: 

• Three states have announced farm loan waiver so far
• Punjab recently announce waiver of loans up to Rs 50,000
• Andhra Pradesh and Telangana demanding for loan waiver 

Punjab too has now joined few other states in announcing loan waivers for its farmers. 

Amarinder Singh, Chief Minister, Punjab on Tuesday announced waiver on loans up to Rs 50,000 given to economically weaker sections. 

Finance Minister Arun Jaitley has already ruled out any federal waiver of farm loans and said the Centre will adhere to its fiscal targets. 

So far, UP government has announced loan waiver of Rs 36,359 crore, followed by Maharashtra with a waiver of Rs 30,500 crore.

Farmers in Andhra Pradesh and Telangana have also demanded for agricultural loan waivers. 

According to State Bank of India (SBI), apart from impacting asset quality for the agriculture sector, farm loan waiver will impact state fiscal deficit adversely. 

It feels impact on Punjab will be maximum with state fiscal deficit jumping by an additional 4.8% of Gross State Domestic Products (GSDP).

Apart from this, Andhra Pradesh state fiscal deficit is expected be 3.1% of GSDP, followed by UP with 2.6% of GSDP and Telangana with 2.3% of GSDP after loan waivers. Impact on Maharashtra will be least at 1.3% of GSDP on state fiscal deficit.

SBI said, “We thus believe that states will make provisions of farm loan waiver in their budgets in multiple years as this will not impact fiscal deficit in one single year. Even in that case we will see some worsening of fiscal deficit for some states.”

Kotak Institutional Equities highlighted few areas where reforms are be needed to overcome farmers' distress in India instead of a farm loan waiver.

One of the issues is to increase productivity in agriculture sector. To increase productivity, Kotak said focus should be on quality and usage of key inputs such as fertilisers, pesticides, seeds, and irrigation. Also on usage of modern technology in terms of equipment as well as seeds.

Shift of farm jobs to more remunerative ones such as horticulture and animal husbandry can bring in proper uniformity in agriculture sector, Kotak report said. 

Another problem is inadequate remuneration for farmers which arises from absence of efficient price discovery mechanism. As per Kotak, farmers receive only around 25-30% of retail prices, especially for perishable crops.

It said, “Archaic APMC (An agricultural produce market committee) laws have been blamed for this institutionalisation of middlemen in the value chain. Even though the e-NAM project is at a nascent stage (needs amendment to APMC Acts in states), it can effectively weed out middlemen and enable farmers to directly negotiate with retailers enabling better remuneration and price discovery.”

There are around 2480 APMCs and 4850 sub-market yards regulated by the APMCs.

Kotak said government needs to be open to the idea of exports (even if controlled but proactive) such that farmers do not lose out their produce. 

Land leasing laws have led to concealed and unofficial tenancy records. Hence, identification of actual farmers rather than just the land owners has been a major problem. 

Kotak said, "This creates distortions in public policy while aiming at direct benefit transfer and disaster reliefs."