Loan Waiver in India Aids Farmers But Raises Concerns

Loan waivers in India have been a contentious issue, particularly for farmers. Many farmers in India struggle to repay loans due to crop failures, low prices, and high interest rates.

The government has implemented loan waivers to alleviate the financial burden on farmers. In 2016, the Uttar Pradesh government waived off loans worth Rs 36,000 crore.

Farmers in India have been using loans to finance their agricultural activities, but often struggle to repay them. The average farm loan in India is around Rs 50,000.

A loan waiver can provide temporary relief to farmers, but it also raises concerns about the sustainability of such policies.

Loan waiver programs are a type of financial assistance offered by governments to help farmers and small business owners who are struggling to repay their loans.

These programs aim to provide relief to borrowers who are facing financial difficulties due to various reasons such as crop failure, natural disasters, or economic downturns.

In the past, India's government has implemented loan waiver schemes to support farmers, with the first one being launched in 2008, which benefited over 3.5 million farmers.

The government of India also launched the Deendayal Antyodaya Yojana - National Rural Livelihood Mission (DAY-NRLM) in 2011, which aimed to provide financial assistance to rural households, including loan waivers.

Loan waivers can be a double-edged sword, as they can provide relief to borrowers but also create moral hazard, leading to further borrowing and debt accumulation.

However, the benefits of loan waivers can be significant, such as the 2016 loan waiver scheme in Maharashtra, India, which helped over 8.7 million farmers and benefited the state's economy.

India's Loan Waiver Schemes have been implemented in various forms over the years. In 2008, the Agricultural Debt Waiver and Debt Relief Scheme was announced, providing relief to 30 million small and marginal farmers with a total waiver of 500 billion rupees.

This scheme was later extended to 43 million farmers in 2008-09, with the debt waiver amount rising by 20% to 716.8 billion rupees. The scheme was a significant relief to farmers in most Indian states, where small and marginal farmers range from 70% to 94% of the total number of farmers.

In 2017, four states - Uttar Pradesh, Maharashtra, Punjab, and Karnataka - announced farmer loan waivers, with an estimated cost of about US$13.6 billion.

The India Agricultural Debt Relief Scheme 2008 was a significant initiative by the government to support small and marginal farmers. P. Chidambaram, the Finance Minister of India at the time, announced the relief package on 29 February 2008.

The scheme included the complete waiver of loans given to small and marginal farmers, with a total value of 500 billion rupees. This was a substantial amount that aimed to alleviate the financial burden on these farmers.

The package also included a One Time Settlement scheme (OTS) for another 10 million farmers, with an estimated value of 100 billion rupees. This scheme allowed farmers to settle their debts in a single payment.

During the financial year 2008-09, the debt waiver amount rose by 20% to 716.8 billion rupees. This increase in the waiver amount further extended the benefits of the scheme to more farmers.

In total, the scheme benefited 43 million farmers, a significant number considering that small and marginal farmers make up a large percentage of the total number of farmers in most Indian states.

In 2014, Telangana made significant strides in loan forgiveness, waiving off Rs. 17,000 crore in loans to 3.6 million beneficiaries.

This massive waiver was a huge relief to the affected farmers, who were struggling to repay their loans. The waiver was a testament to the government's commitment to supporting its citizens in times of need.

The Andhra government also implemented a loan waiver scheme in 2014, providing financial assistance to 4.9 million farmers' families. The total amount waived off was Rs. 24,500 crore, distributed in three installments with the last two installments bearing a 10% interest.

The interest on the last two installments may have added to the farmers' burden, but the government's efforts were still a significant step towards alleviating their financial woes.

In 2017, at least four states in India - Uttar Pradesh, Maharashtra, Punjab, and Karnataka - announced farmer loan waivers, with an estimated cost of about US$13.6 billion.

The estimated cost of implementing loan waivers nationally is projected to be around 2-2.6% of GDP, which translates to US$40-50 billion.

The Reserve Bank of India (RBI) has expressed opposition to loan waivers, citing concerns about their impact on public sector banks already under stress.

In some states, the default rate has increased to 50-60% as farmers stop paying loans and withdraw deposits from banks in anticipation of waivers.

Experts warn that loan waivers can cause long-term problems and are generally regarded as a populist and fiscally risky measure.

The PSLF program is only available for federal loans, not private loans. This is a crucial distinction, as it means that borrowers with private loans are not eligible for forgiveness.

To qualify for PSLF, borrowers must have made 120 qualifying monthly payments under a qualifying repayment plan while working full-time for a qualifying public service employer. This can be a complex and daunting requirement.

Borrowers must have a specific type of employer, have a specific type of loan, be enrolled in a specific loan repayment plan, and make payments in full and on time. These requirements can be difficult to meet.

The initial rejection rate for PSLF forgiveness was over 99%, which is unreasonably high. This suggests that the requirements are overly complex and difficult to navigate.

In 2019, Congress created the TEPSLF program, which relaxed some PSLF requirements with regard to what repayment plans qualified. However, this created its own problems, including a lengthy and bureaucratic application process.

To be considered for TEPSLF, borrowers had to submit a PSLF application, wait months for a rejection letter, and then apply for TEPSLF. This is a frustrating and time-consuming process for borrowers.

The Agricultural Debt Waiver and Debt Relief Scheme has been met with sharp criticisms from various groups, including opposition parties, agricultural experts, and bankers. They argue that the loan waiver is a populist move by the UPA Government to gain votes in the upcoming elections.

Critics point out that the scheme covers only formal sources of credit, excluding informal loans. This means that small and marginal farmers, who borrow from private moneylenders, won't benefit from the scheme. In fact, about 77% of farmers don't have access to institutional credit.

The scheme has also been criticized for potentially crippling the agricultural credit system. In Punjab, farmers are taking advantage of the scheme by depositing their income in other banks and avoiding lending banks, hoping for a loan waiver. This is not an isolated incident, as farm loan repayment has dipped by 10% in Madhya Pradesh, with some farmers expecting a change in the ruling party and loan forgiveness from the opposition.

The Agricultural Debt Waiver and Debt Relief Scheme has faced intense criticism from various groups, including opposition parties in the Indian Parliament, agricultural experts, and bankers. Critics argue that the loan waiver was a populist move by the UPA Government to gain votes in the upcoming elections.

Many have pointed out that the scheme only covers formal sources of credit, leaving out informal loans that small and marginal farmers rely on. This means that the majority of farmers who borrow from private moneylenders will not benefit from the scheme.

The director of the Center for Environment and Food Security, Parshuram Ray, has described the loan waiver as "an electoral sop that involves a lot of statistical jugglery and very little of real hope for Indian farmers." This criticism highlights the scheme's potential to create more problems than it solves.

The scheme may also cripple the agricultural credit system, which could have far-reaching consequences for the entire agricultural sector.

Farmers are exploiting loan waiver policies to their advantage. In Punjab, they're depositing their income in other banks, avoiding the lending banks, in anticipation of a loan waiver due to the upcoming 2019 General Elections.

Farmers in Madhya Pradesh are also taking advantage of the situation, with farm loan repayment dipping by 10%. This is likely because they're expecting a change in the ruling party and hoping for loan forgiveness by the opposition Congress party if it comes to power.

Farmers are essentially playing a waiting game, hoping to get out of paying their loans. This is a concerning trend that highlights the potential for exploitation of loan waiver policies.

In Punjab and Madhya Pradesh, farmers are using the upcoming elections as a way to avoid paying their loans. This is a clear example of how some individuals are taking advantage of the system for personal gain.