[Reader-list] Farm loan waiver: The unanswered questions!

[Bikash Ballabh Singh]

Sonia Gandhi wanted it; Chidambaram announced it; and Manmohan Singh has
de-fended it. But no one seems to know how the Congress-led UPA government's
farm loan waiver scheme is going to be put into practice. The scheme is
iniquitous.

by  R. Venkatesan Iyengar via merinews.

 DISCERNING OBSERVERS of the Indian political scene may have sensed that a
relief package for farmers was in the offing even before the Union Finance
Minister (FM), P. Chidambaram, announced a waiver of Rs.60,000 crores worth
of farm loans in the Union Budget 2008-09. News about the pre-budget
deliberations between UPA, the Congress Chief Sonia Gandhi and Prime
Minister Manmohan Singh made it amply clear that Sonia Gandhi was pitching
for farm loan waiver, women welfare schemes and income tax sops for the
middleclass in the budget – obviously with an eye on the general elections,
which may be held towards the end of this year or next year.

While the FM's loan waiver announcement has predictably been extolled as a
"revolutionary step" by Sonia Gandhi and welcomed generally by farmers who
stand to benefit from the loan waiver, it has raised several questions: how
the Finance Minister is going to implement it? From the surprise evinced by
some of Chidambaram's cabinet colleagues at the relief package and
Chidambaram's inability to explain how he is going to deliver on his
promise, it is clear that the Finance Ministry has not worked out the
details of the loan waiver scheme – which is nothing but a classic case of
acting in haste and regretting at leisure.

In other words, the FM is not sure, at the moment, how the government is
going to compensate the banks, both private and public, for the loss they
will incur when the loans they have given are waived. This uncertainty
naturally led to a 900-point fall in the BSE Sensex post-Budget, with the
Bankex leading the slide with a 6.7 percent drop. It was attributed to fears
that the loan waiver would lead to a further rise in bad debts and thus a
fall in the profits of banks.

In his budgetary address, Chidambaram said that "the country is discharging
a deep debt and sense of gratitude to farmers" by offering the loan waiver
package. The announced waiver is said to be for Rs.50,000 crore worth of
loans owed by small and marginal farmers (i.e. farmers who own below two
hectares of land) and a settlement scheme for other farmers that would
amount to another Rs.10,000 crore. However, there is lack of clarity even
here. For example, a farmer tilling two hectares of a well-irrigated land is
in a much more comfortable position than the one who owns, say, 10 hectares
of dry land.

The question is: Should the package benefit a farmer who is reaping a rich
harvest from his two-hectare land and thus is in a comfortable position to
repay the bank loan or should it benefit a farmer in a region like Vidarbha,
Maharashtra, who despite owning more than 10-hecaters of land, finds himself
unable to make ends meet? In other words, what should be the criterion for
measuring 'distress' – size of the landholding or degree of poverty and
distress?

A region-specific loan-waiver scheme that benefits the really needy could
have been thought of. However, such selective implementation of the scheme
would not get Congress the votes, which, after all, is what this scheme is
apparently all about.

Defending the loan waiver package, Prime Minister Manmohan Singh said his
government took the "historic initiative to waive farmers' loans on an
unprecedented scale" because of the "unpaid distress bill" left behind by
the erstwhile BJP-led NDA government. But the Prime Minister, obviously,
cannot tell us why his government took nearly four years to foot the "unpaid
distress bill". The Prime Minister further said that the relief package is
"well-funded" but has no concrete details to offer. Though the Prime
Minister said that "the banking system will not be constrained in any
manner" and that "we should not grudge the farmers their due," the fact that
he chose to drag the name of NDA into the picture shows that the whole thing
is all about political opportunism.

For, if the government had really been sincere about freeing the farmers
from the debt trap, it would have asked the Reserve Bank of India (RBI) to
work out a solution, in consultation with the public and private sector
banks and refrained from interfering in the working of the banks. To cite an
example, it was the Federal Reserve, the central bank of the US and not the
US government, which bailed out the banks stuck in the sub prime crisis. But
unfortunately, in India, political considerations and not economic ones,
influence government's thinking.

Source: http://www.merinews.com/catFull.jsp?articleID=130801