Waiver of mass debt

Issue 13 - Apr 2008

Vijay Mahajan

The same Rs 600 billion could have been used to drought-proof 60 million hectares of dryland at Rs 10,000 per hectare, which would permanently secure the livelihoods of at least 30 million poorer farmers in rain-fed areas. Dozens of successful examples exist of the rehabilitation of natural watersheds and traditional water storage structures, both by NGOs and government agencies. Part of the funds could also be used to rehabilitate the dilapidated canal irrigation systems, conditional on the states switching to participatory irrigation management.

Even if one were to accept that the loan waiver was aimed at gaining electoral advantage, it could have been done much more equitably and would have fetched more votes.

Recognising that the debt burden of small and marginal farmers is more from moneylenders and traders, a waiver should have been given for both bank and moneylender/trader loans. Given the difficulty of verifying these, the waiver could have been limited to Rs 5000 per hectare for farmers with irrigation, and Rs 2500 per hectare to rainfed farmers, with a cap of Rs 10,000 per farmer in both cases. Additional amounts from informal lenders could have been swapped for much lower cost bank loans, as has been tried in Andhra Pradesh by the “total financial inclusion” program of the Indira Kranti Patham project.

Further, to prevent leakage, the money could be credited to the bank accounts of farmers. This would also have created incentives for banks to open “no-frills” accounts for 50 million farmers who don’t have bank accounts, as per the recently adopted national financial inclusion plan.
Rough calculations show that this alternate method would have benefited 100 million farmers, about thrice the number likely to be covered at the moment.

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