Farmer Loan Waiver & Absence of Free Enterprise in Indian Agriculture

Summary

This Forum of Free Enterprise booklet, published in memory of chartered accountant Shailesh Kapadia (1949–1988) and sponsored by the Shailesh Kapadia Memorial Trust, bundles two independent essays on the crisis in Indian agriculture written against the backdrop of mounting state-level demands for farm loan waivers. A short editorial by Sunil S. Bhandare and an overview signed by Minoo R. Shroff (President-Emeritus, Forum of Free Enterprise, 8 August 2017) frame the volume’s argumentative centre: that rural distress, farmer suicides and chronic indebtedness reflect a deeper unviability of agriculture as an occupation, and that competitive forces simply do not operate in farm input and output markets — leaving loan waivers as a populist soft option rather than a real remedy.

The first essay, “Farm Loan Waiver: A Critical Evaluation” by Dr. C. L. Dadhich (Hon. Secretary, Indian Society of Agricultural Economics; former Director of Rural Economics at the Reserve Bank of India) and Dr. Barendra Kumar Bhoi (recently retired Principal Adviser and Head of Monetary Policy Department, RBI), uses NSSO and RBI data to argue that fragmented landholdings, growing reliance on non-institutional credit and an inefficient value chain dominated by middlemen have made cultivation structurally loss-making, and that competitive loan waivers distort credit culture without addressing the underlying causes. The second essay by Kumar Anand, described in the editorial as a young economic-liberal thinker, locates the same crisis in the absence of market principles at the input and output levels and questions whether central planning has truly been abandoned despite the dissolution of the Planning Commission. The rendered pages cover the front-matter, the foreword, the editorial and the opening sections (Introduction; Agrarian Distress; Rural Indebtedness; Inefficient Value Chain) of the first essay through printed page 18.

Essays

Farmer Loan Waiver - A Critical Evaluation

By Dr. C.L Dadhich; Dr. Barendra Kumar Bhoi

Dadhich and Bhoi open by situating the current wave of state-level farm loan waivers within India’s longer history, noting that waivers were historically reserved for crop-failure emergencies but are now being demanded even when agricultural production is at record levels. They frame loan waiver as both a fiscal-discipline problem for central and state governments and, in the absence of a social security system, a humanitarian question — while reminding readers that agriculture is a state subject and that the RBI already has guidelines to restructure farm loans in distress.

The analytical core of the rendered pages diagnoses agrarian distress along three axes. First, agriculture has become an unviable occupation: NSSO’s 59th round (2003) found 40 per cent of farmers wanting to abandon farming, and the 70th round (2013) shows two-thirds of agricultural households now spending more than they earn, sustaining themselves through borrowing while capital formation collapses. Second, despite cooperatives, bank nationalisation, NABARD, Regional Rural Banks, priority sector lending and Kisan Credit Cards, the share of institutional credit to rural households fell from 69.4 per cent in 1991 to 56 per cent in 2012, with institutional lenders showing a clear bias toward larger asset-holders while non-institutional sources lend across the size distribution. Third, an inefficient value chain forces small and marginal farmers to dump produce at harvest, with procurement operations limited to a handful of crops and states and middlemen capturing the bulk of the retail price. The rendered section stops just as the authors begin to characterise the value-chain problem; the rest of the essay (policy implications and recommendations) lies beyond page 18.

• Farm loan waivers have shifted from being an exceptional response to crop failure into a recurring state-level political demand even in years of record agricultural output.
• NSSO surveys show roughly 40 per cent of farmers want to quit farming and that two-thirds of agricultural households now consume more than they earn, financing the gap through borrowing.
• Institutional credit’s share of rural lending fell from 69.4 per cent in 1991 to 56 per cent in 2012, with banks and cooperatives favouring asset-rich households while the poor rely on costlier non-institutional lenders.
• Rising labour and input costs — not output-price weakness alone — are identified as the central drivers of cultivation’s unviability, even after five years of large MSP hikes through 2013-14.
• Bumper harvests in 2016-17 produced a collapse in pulses, oilseed and vegetable prices, so the latest wave of farmer agitation is described as a market-failure crisis rather than a crop-failure crisis.
• Inadequate warehousing and procurement confined to a few crops and states (Punjab, Haryana, Andhra Pradesh, Odisha, West Bengal) leave middlemen with the bulk of the final retail price.