Cover Story/Policy

In a policy trap

Print edition : July 07, 2017

Farmers and activists of the Vidarbha Rajya Andolan Samiti celebrating after the Maharashtra government announced a loan waiver for farmers, in Nagpur on June 12. Photo: PTI

While farm loan waivers are a must to address the symptoms of a crisis, they will not solve the long-standing agrarian crisis, which reflects the deeper crisis of neoliberal economic policy itself.

THEY are by no means new to India. But the spate of farm loan waiver announcements, either voluntary or made under pressure, from Bharatiya Janata Party (BJP)-led State governments suggests that the ruling party has been forced to recognise the agrarian crisis. Farmers are burdened with excess debt and, given the returns from farming, there seems to be little hope that most of them will be able to extricate themselves from that web of debt. If the problem had afflicted one or a few farmers, it would have been ignored. But the crisis in focus afflicts the majority.

So starting with the waiver of loans of up to Rs.1 lakh outstanding with small and marginal farmers in Uttar Pradesh, in keeping with an election promise, the “waiver wave” has spread to Maharashtra and Madhya Pradesh, where the governments have been forced by farmers’ agitations to accede to generous packages. In both States, the governments concerned held out against the demands saying they were not financially feasible and offered some minor concessions instead. But farmers were unwilling to accept these even when their “leaders” were willing to settle. The argument seemed to be that if the Uttar Pradesh government can set aside Rs.36,000 crore to settle loans, other governments can do that much or more.

Contagion effect

Soon, embarrassed by the strength of the movements launched by the farmers and their resilience, the Maharashtra and Madhya Pradesh governments had to cave in. Chief Minister Shivraj Singh Chouhan of Madhya Pradesh had to end the drama of an indefinite fast aimed at restoring peace and buy peace with a loan waiver announcement that was similar in scale to what Uttar Pradesh had done. It is inevitable that this wave will now extend to other States, as a contagion effect. The reality of the agrarian crisis and farmer solidarity have put the fear of the voter into the politicians.

Efforts will, of course, be made to dilute or turn back the waiver programme. The way the waiver promises have been worded gives cause for scepticism about the intentions of the governments concerned. The Rs.1 lakh ceiling in Uttar Pradesh will definitely exclude a substantial number of affected farmers and had not been specified as a condition when the waiver slogan was being used to mobilise voter support during the Assembly elections. In Maharashtra, the scheme is being made applicable only to so-called “genuine farmers”, or those whose only source of income is farming. Since the accumulated debt is a symptom of a crisis in farming, to expect farmers to have only farming as their source of income is self-contradictory. So, whether the announcements of waivers, which many farmers and those advocating their cause see as inadequate, will be implemented in full will be known only in time. But as of now, farmers in many regions seem determined not merely to have their debt wiped clean but also to get the government to adopt measures that will prevent a recurrence of the crisis.

The current round of loan waivers must be seen in the context of a long-run reliance on this measure to appease farmers dogged by crises that burden them with unserviceable debt, which often makes them desperate enough to commit suicide. For example, the United Progressive Alliance government waived loans amounting to Rs.60,000 crore in 2009, in the run-up to parliamentary elections. Since then, there have been quite a few State-level initiatives, including a 2014 waiver to the tune of Rs.17,000 crore in Telangana implemented by the Telangana Rashtra Samithi government and a scheme granting a waiver of Rs.5,780 crore (which the Madras High Court hiked by a further Rs.1,980 crore) announced by Jayalalithaa of the All India Anna Dravida Munnetra Kazhagam in Tamil Nadu in 2016.

Between fiscal reform and political exigency

The response of the commercial, banking and policymaking elites to these waivers has been that it is a form of “populism” not in keeping with the requirements of diligent banking and a prudent fiscal policy stance. Reserve Bank of India Governor Urjit Patel said in April that a loan waiver “undermines an honest credit culture. It impacts credit discipline. It plugs incentives for future borrowers to repay. In other words, waivers engender moral hazard.” Also, he said, each round of waiver adds to the fiscal deficit at the Central or State level, especially the latter. Assuming this process will continue until the 2019 general election, Bank of America Merrill Lynch has estimated that waiver sums will add up to Rs.2,57,000 crore, or 2 per cent of the gross domestic product (GDP), by that date. If that is financed with borrowing, the ratios of the fiscal deficit and public debt to GDP will cross levels considered inviolate by the advocates of fiscal reform. This was what Urjit Patel was referring to when he said: “We also need to create a consensus such that loan waiver promises are eschewed. Otherwise, sub-sovereign fiscal challenges in this context could eventually impact the national balance sheet.”

But with electoral victory and political credibility under threat, the BJP, despite its staunch commitment to neoliberal fiscal and banking reforms, has had to relent. The expectation is that State governments will issue special bonds (such as the Kisan Rahat Bonds in Uttar Pradesh) and that the Centre will exempt these from the requirements set by the Fiscal Responsibilities and Budget Management Act even though this would be a violation of the law and the tenets of fiscal “reform”. As a result, an elite that was celebrating the “bold reformism” of the Narendra Modi government is forced to complain, but perhaps not with the vigour it would have displayed if some other government were in power.

Signs of spreading

The problem the government faces is that the protests relating to the agrarian crisis are not confined to opposition leaders, a few journalists and sundry academics. If that had been the case, those arguments would have been ignored. The protesters also did not take the gruesomely passive decision to commit suicide rather than face the ignominy of being proceeded against or prosecuted for debt default. The protests are ones in which farmers in some States have come out to assemble, march, blockade and even go on strike by refusing to commence cultivation. The fact that these protests were showing signs of spreading across the country made matters worse. And they were not being withdrawn either in response to tall promises without concrete offers or in response to the drama of an indefinite fast for peace that was quickly withdrawn after negotiations with BJP-linked or BJP-inspired farmers.

In the event, however reluctantly, the BJP led by Modi and Arun Jaitley has had to go back on its claim to be more ardent adherents of a “modern”, neoliberal economic policy regime. Loans are being waived, moral hazard is being flirted with and the tenets of neoliberal fiscal reform are being grossly violated. The reason for this is the intensity of the problem at hand, which demands immediate resolution given growing farmer anger. The severity of the long-ignored rural debt problem hardly bears emphasising. The large number of farmer suicides and the periodic bouts of farmer protests had made it clear that the problem of low incomes or negative returns and unsustainable debt was widespread. Hence, any small shock was enough to destabilise the farming community. Among other factors, such a shock was delivered by indifferent or bad monsoons in 2013-14 and 2014-2015 and by demonetisation, which affected farmers extremely adversely since it was imposed between two seasons and affected the sale of one crop and the sowing of another. This made an unbearable burden impossible to endure, leading to the protests that are forcing the hands of both the Central and State governments. Hence, the waiver wave.

Inherent policy contradictions

If there was reason to believe that a waiver was a magic bullet, a one-shot resolution, then opposition from even the elites might have been weak. But as the periodic waiver announcements mentioned above suggest, the problem does not just go away. This is because of the contradictions inherent in a neoliberal policy regime that prevent resolution of the farmer debt problem. The principal constraints set by fiscal conservatism have reduced budgetary allocations to the food economy. As a result, the government has been loath to implement the M.S. Swaminathan Commission recommendation that the minimum support price (MSP) should be “at least 50 per cent more than the weighted average cost of production” so as to improve the profitability of agriculture production. Moreover, procurement even at the MSPs offered has not always matched farmers’ desire to sell to the government. Cuts in subsidies that have limited the spread of the public distribution system and reduced offtake have discouraged procurement for distribution. Investments in drainage and flood control have been squeezed, and the system of extension services has been allowed to decay. All of these have adversely affected productivity and raised costs. And on top of this the neoliberal policies of deregulating input prices, curtailing subsidies and freeing imports and lowering import tariffs have been imposed, subjecting agriculturists to rising costs and competition from low-cost imports. In the event, the viability of crop production has been eroded. Farmers borrow to undertake production but are unable to garner the income needed to be viable. Borrowing increases until default becomes unavoidable. While it becomes necessary to address the debt burden and write off defaulted loans, the problem of excess indebtedness will not go away unless the other problem of the unviability of crop production because of the impact of neoliberal policies is addressed.

The difference between the two resolution requirements is that while a loan waiver scheme can be presented as a one-shot scheme with attendant violations of neoliberal fiscal policy rules, restoring viability requires a retreat from the framework of neoliberal policies in the medium term. So the first is preferred if unavoidable. But since such a resolution does not address the basic causes of the crisis confronting farmers but merely treats an extreme symptom, the problem of unsustainable agrarian debt recurs sooner or later.

Seen in this light, farm loan waivers while a must to address the symptoms of a crisis are no resolution to the agrarian crisis. The crisis reflects the deeper crisis of neoliberal economic policy itself. That, however, is a truth the BJP governments at the Centre and in States are unwilling to face up to.

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