1. Farm Loan Waiver – A Band aid?

2. Points to be covered Problems with Indian Agriculture
What is loan waiver?
Need for loan waiver?
Arguments in favour and against the loan waiver
Solution / way out

3. Problems with Indian Agriculture
Substantial workforce is involved in agriculture
Majority of the land under agriculture is dependent on monsoon
Traditional methods of irrigation
No fixed revenues/returns
Land fragmentation
Agriculture credit
Demonetisation

4. Problems with Indian Agriculture – Land Fragmentation

5. Agriculture Credit (As per Report on Medium Term Financial Inclusion by RBI)
Size of the land
Co-op society
Bank
Informal Sources
Marginal
10%
27%
63%
Small
15%
48%
37%
Semi-Medium
16%
50%
34%
Medium
18%
32%
Large
14%
64%
22%
Report on Medium Term Financial Inclusion – RBI

6. Previous Loan Waivers Year Points 1990
Announced by V P Singh Government
Total expenditure of over ₹ Cr
Covered loan waiver of up to ₹ 10000
2008
Announced by UPA government
Applicable to small and marginal farmers
Expenditure incurred was over ₹ Cr
2012
Announced by Samajawadi Party
Waived loans up to ₹ 50000
Expenditure incurred was around ₹ 1650 Cr
2014
Elected governments in AP and Telangana announced loan waiver
In case of Telangana it was announced for ₹ Cr
In case of AP it was announced for loans up to ₹ 1.5 lakh
2016
AIADMK government announced loan waiver
Small and marginal farmers owning up to 5 acres were covered
The expenditure incurred was ₹ 5700 Cr
2017
- UP government has announced a loan waiver of ₹ Cr

7. Arguments in Favour of Loan Waiver
Agriculture is in distress
Agriculture distress is one of the contributing factors for the farmer suicides
Two successive droughts in FY15 and FY16 followed by good monsoon in the next two years
Why not for agriculture?

8. Arguments Against the Loan Waiver
Moral Hazard Argument
Not all the farmers are covered
Creates a conflict between lenders and borrowers
The fiscal deficit of the states/central government
It’s a temporary solution
Domino effect
Implementation concerns

9. Do loan waivers work? CAG Report 2013 World Bank Report 2012
Commission and Omission errors
Issue with the certificate
Issue with the design of the scheme
World Bank Report 2012

10. Way Forward DBT might be tried out
M S Swaminathan Committee Recommendations
Efficient Agriculture Export Policy
Efficient Implementation of reforms
Empowering FPOs
Regulating informal lending