Question

Is loan waiver or interest waiver good for farmers of the country ?

Where does the money for these loans come from ? Who pays?

What's a good solution?

Answer 1

Theme :-

Uttar Pradesh government waives farm loans worth Rs. 36,000 crores in April 2017.

Tamil Nadu also decided to waive loans for farmers.

Several other states including AP, Telangana & Maharastra have pressure to follow the same.

Good :-

In India, results of crops highly depend on monsoons. Farmers invest heavily on crops by taking loans. If the crop fails due to lack of rains or insufficient market demand, farmers will get trapped in debt. Farmer suicides are increasing in India. So, it’s a good step to waive farm loans.

Many farmers borrow money from unofficial moneylenders for high interest rates and get trapped in vicious cycle of debt. Farm loan waiver schemes will divert these farmers to borrow money from banks.

Agriculture in India is not a good career option yet. Many farmers are leave farming, if they find alternatives. If this situation continues, there will be a severe food scarcity. To prevent this situation, government need to gain the trust of farmers. Farm loan waiver scheme does that.

Bad :-

Loan waiver schemes disrupts credit discipline. Farmers will turn into willful defaulters as they wait for the next loan waiver scheme, which is bad for economy.

This scheme indirectly punishes loan repayers. Those who repaid loan before the announcement of the scheme are at loss.

Those who didn’t repay loans, even if they afford to are at benefit. But here, taxpayers are at loss, because loans will be waived with taxpayers’ money.

Instead of loan waiver scheme, it will much better if government improves the crop insurance scheme, educates farmers about the market trends, increases the Minimum Support Price (MSP).

Banks may brand farm loans as bad loans and they may implement stricter rules to lend money to farmers.

Rich farmers too may take loans even if there is no need, in the hope of the next loan waiver scheme. This will impact the farmers who are genuinely in need of loans.

Facts :-

Agricultural debt waiver scheme was first implemented in 2008 under UPA government. Then, Rs.60,000 crore worth farm loans were waived off.

Conclusion :-

Though loan waive offs will disrupt credit discipline, farm loan waiver scheme is beneficial to many. Amid the increasing farmer suicides, loan waiver scheme provides relief for many families and encourages them to invest in the next crop. This in turn benefits India’s food security as well. But care must be taken to weed out the willful defaulters from the scheme and to provide incentives to those who repaid the loans.

Answer 2

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Indian agriculture is often compared to the act of gambling in the monsoon. With the prevailing drought conditions and falling agricultural outputs in certain areas has fuelled the farmer suicides throughout the country. However, the loan waiver scheme provides relief for many families thereby encouraging them to invest in the next crop. But these benefits don’t offer long term economic gain for farmers. Many economic experts feel that the money waived could be used for investing in infrastructure projects which help to eliminate middlemen and help them to reap maximum benefits of their products