Context
The Telangana government has recently launched the first phase of the farm loan waiver scheme with Rs 6,098 crore being credited into the accounts of over 11 lakh farmers.
About
- Farm loan waivers are financial alleviation measures in which the government forgives certain agricultural loans, assuaging farmers from the responsibility to repay.
- The government takes on the farmers’ outstanding debt by allocating a budget to banks and financial institutions.
- Farmers face numerous demanding situations, which includes disputed land ownership, diminishing groundwater reserves, terrible soil quality, growing input charges, and occasional crop productivity.
Arguments favoring the Loan Waiver
- Debt Relief: Farmers facing extreme financial hassle due to crop failure, natural failures, or low market costs can take advantage of debt alleviation provided by means of waivers. It can offer transient alleviation and prevent them from falling right into a deeper debt spiral.
- Improved Investment Capacity: By alleviating debt burden, waivers can free up assets for farmers to spend money on higher inputs (seeds, fertilizers), irrigation, and technology, probably leading to increased productivity ultimately.
- Social and Political Stability: Widespread farmer distress can result in social unrest. Loan waivers can be seen as a degree to cope with this difficulty and hold social stability in rural areas.
- Stimulating Rural Economy: Increased disposable income for farmers due to debt comfort can stimulate the agricultural economic system by boosting demand for important goods and services.
Arguments against the Loan Waiver
- Moral Hazard: Loan waivers can create an ethical hazard problem. Farmers, knowing that the government would possibly intrude in case of debt, are probably less careful about taking on loans and managing their budget responsibly. This can cause a cycle of debt and reliance on bailouts.
- Fiscal Burden: Loan waivers may be a substantial financial stress at the government. The cash used for waivers may be better spent on lengthy-term answers for the agricultural sector, including irrigation initiatives, research and development for improved crop types, or constructing higher storage facilities. For Example: Maharashtra nation selection to waive off crop loans value about Rs 45,000 crore in 2020.
- Limited Long-Term Impact: Loan waivers only offer brief remedy. They do not cope with the underlying reasons of farm distress, consisting of low crop prices, risky markets, lack of access to irrigation or right storage facilities, and high enter prices. Without addressing those root causes, the problem of farm debt will persist.
- Distortion of Credit Market: Loan waivers can discourage banks and other financial institutions from lending to farmers in the future, fearing future bailouts. This can make it even more difficult for farmers to get admission to credit score, hindering lengthy-term investments of their farms.
- Inefficiency and Corruption: The technique of implementing loan waivers can be inefficient and vulnerable to corruption. There’s a threat that the intended beneficiaries may not obtain the whole advantage due to bureaucratic hurdles or mismanagement.
Way Ahead
- Invest in infrastructure for better storage centers, improved transportation networks, and efficient advertising and marketing channels to ensure farmers get honest prices for their produce.
- Encourage farmers to diversify their crops to reduce dependence on a few inclined vegetation and mitigate risks associated with rate fluctuations.
UPSC Mains Practice Question
Q. Given the vulnerability of Indian agriculture to vagaries of nature, discuss the need for crop insurance and bring out the salient features of the Pradhan Mantri Fasal Bima Yojana (PMFBY). (2016)
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