Why debt-waivers are not the best solution to solve agrarian distress?

UPSC Mains General Studies Paper III

Topic: Economy


Around 52% of the farming households are in debt as per the NSSO Situation Assessment Survey of Agricultural Households (2013) with interest rates touching as high as 89-92% in some states. The quantum of debt has increased a lot, especially from informal credit sources. Rural agrarian distress has become the elephant in the room and is at the centre of the national discourse today. Various states, especially since 2014, have taken the step of waiving the loans taken by farmers as a way to help them in distress.


Reasons for Farm Debt-Waivers:

  • It aims to give an immediate relief to the farmers by addressing the direct point of pain. It is the enormous debt burden that pushes the farmers to despair and suicides.
  • It helps political parties to gain votes of empathy during election time as farmers feel grateful to the government for writing off their loans.

Agricultural Debt waivers are not very helpful:

  • The small and the marginal are mostly excluded from institutional credit and obtain credit from informal sources. So, Farm debt waivers don’t actually help the neediest ones.
  • Farm debt waivers are actually an acknowledgement to the systemic failures of the government.
  • The burden on farmers because of lack of compensation during drought and disasters, the failures of the crop insurance scheme, and the deficit due to prices falling below the announced Minimum Support Prices runs to tens of thousands of crores every season.  A one-time loan waiver doesn’t guarantee that the same situation of distress won’t arise after a few years.

Long-Term Structural changes to help Farmers:

  • Agriculture needs to be made more remunerative by lowering the cost of cultivation and ensuring fair prices for their produce
  • Institutional credit to all the farmers, which includes land-owning farmers, sharecroppers, tenants, adivasi and women farmers, and animal-rearers, should be guaranteed so that they don’t have to rely on the informal sources of credit. A study by Ryuthu Swarjay Vedika in June 201 shows that around 75% of farmer suicides in Telangana were by tenant farmers.
  • Mechanism to convert informal loans of farmers into bank loans should be set up. The guidelines issued by Reserve Bank of India in 2014 for extending loans to landless farmers and for a debt-swapping scheme to convert informal loans of farmers into bank loans should be implemented.
  • Farmers’ distress and disaster relief commissions need to be set up at the national and State levels, based on the model of Kerala’s Farmers’ Debt Relief Commission.
  • The concepts of limited liability and bankruptcy protection need to be adapted to the farming sector since Agriculture is a National Enterprise. This will provide targeted protection to distressed farmers whenever they need it rather than waiting for election years.
  • Promoting Sustainable models of Agriculture and viable farmer collectives

Agrarian Distress

The ongoing farmers’ movement demands enactment of a law for freedom from indebtedness. The Bill for this has been developed by the All India Kisan Sangharsh Coordination Committee. it incorporates provisions for a functional institutional credit system and protection from debt trap in bad years. The government should make a serious attempt to make some long-term reforms in the agricultural system rather than going for the usual business of using farm-waivers as a vote-garnering tool.


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