Promote healthy credit culture rather than waiving farm loans: Study


The government must promote a healthy credit culture, invest in farming and address distortion in the agriculture sector instead of waiving farmers’ loans irrespective of their distress level, a joint study by NABARD and Bharat Krishak Samaj has said.

The study, ‘Farm loan waivers in India: assess the impact and looking ahead’, was released on Friday.

“The production cycle coupled with other factors, makes it impossible for farmers not to be indebted, and the income instability makes it difficult for farmers to come [out of] a cycle of debt,” the study said. It covered farm loan waiver schemes in Punjab, Uttar Pradesh and Maharashtra.

Farmers in Punjab borrowed the largest amounts per farmer category and their dependence on non-institutional sources was also the highest across all farmer categories, the study said. Credit needs of farmers in Uttar Pradesh and Maharashtra were similar, while the share of loans from non-institutional sources was lower in Uttar Pradesh.

The decisions of central and state governments in writing off past dues and providing access to fresh credit lead to ‘cyclicality of debt’ as farmers face multiple distortions, making the business of farming volatile and unviable.

Farm loan waiver schemes were aimed at providing relief to farmers during flood and drought, “increasing frequency of waivers and by universalising its distribution that is mostly unconnected to levels of farmer distress”, the study said.

It suggested that a waiver may be reserved as a toll, as it was originally designed to be a one-off event for situations of extreme plight.

A waiver only improves a farmer’s financial health for a short period of time and “in a matter of time that beneficiary farmer is indebted again and driven to appoint of needing another round of waivers soon”, it said.

The study has suggested creating a real-time dynamic distress index of farmers, which can integrate available high frequency data on weather conditions, existing and upcoming climatic conditions, debt burden on farmers, and data on agricultural commodities.

The distress index could be monitored on a real-time basis to track the level of farmers’ distress and the results could be used by policy makers to plan and design timely interventions to support farmers, the study said.


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