India has been, is and will be a predominantly agrarian economy. Any amount of industrialization or development is not going to change, at least until the next century. Hence, we cannot blame the successive regimes at the centre in general or the Finance Ministers in particular, for taking a biased favor for the Indian farmer. Every budget has seen some measure or the other to favor the farmer. Banks have also been asked to consistently maintain a high level of exposure on Agricultural lending. But the mother of all favors is the consistent decision to exclude agricultural income from the purview of Income Tax. In fact it is estimated that 60% of personal income generated in this country, thus gets exempt from Income Tax. This has been a regular point of dispute among the various taxed-sectors. But what many people may not have noticed or are not aware of is that no Finance Minister can tax the income of a farmer under Direct Taxes regime, not because of the political implications of such a step, but because the Constitution of India does not permit the same.

Having said this, let’s turn to the proposal in the current year’s budget presented by Sri P.Chidambaram to the Parliament. The Indian farmers have been offered the largest bonanza in independent India’s history, with a loan waiver of Rs. 60,000 crores. Pressed with the rising number of farmer-suicides and more by the sighting of elections round the corner, the proposal had become an inevitable necessity. Which ever party was in power would have grabbed this opportunity to placate the largest vote bank. Hence one cannot blame PC on this score. Further my intention is not to comment on the political manifestations of this decision. I am looking at it from the economical and fiscal point of view.

Rs 60,000 crores write off would mean a substantial percentage of non-plan expenditure having to be provided for by the government. Much as I would like to believe PC when he said this would come from good governance, good revenue collection, I know he himself did not believe that. Thus, obviously, the amount is going to add to our revenue and fiscal deficit. This does not auger well for the economy or even for those of us who contribute to the revenue of the government. rather than dwelling on the fiscal implications, for which this may not be the right forum, I would like to convey my apprehension and disapproval by terming it as a “Suicidal Decision“.

The impact it is going to have on the Banking sector as well as the mindset of the existing and future bank borrowers will be catastrophic. Year after year,the agricultural community and may be slowly the less organized sectors like the SSIs, Small Business and even SMEs are going to expect such measures, which would only generate a climate of loan defaults, even willful defaults.

While I fully agree that our farmers, especially the small farmers, do deserve a preferential and concessionary treatment, there were better ways of handling the situation. The loan waiver will only save them from recovery of loans given by the Banking sector. But the fact is more than 65% of farm debt is owed to the Private Money lender and not the Banking sector. Thus the waiver will not save our farmers from existing debts and this suicidal measure is not likely to bring down the suicide rates. The measures that could have been adopted are:

  1. Bring in a legislation to bar all private money lenders from recovring the exisitng dues from farmers for another three years and to cap the maximum interest they can charge on farm loans at the bank lending rates for farmers in the respective areas and crops.
  2. Legislation should ensure that no private money lender can take possession of either the crops or the land of a farmer for exisitng oe future loans, even if any documentation to the contrary is held. This would ab-initio deter loan sharks from lending to farmers with a view to grab their lands and farmers would go to the banks.
  3. Allow banks 3 to 5 years time to recover the defaulted farm loans, relaxing the norms for Non performing Assets.
  4. Allocate substantial funds for farm-sector reforms, including measures to ensure reasonable support price for their produce, setting up proper marketing set ups, improving the infrastructural support to the farm sector ( ware houses, electricity, road and transportation), speeding up the interconnectivity of Indian rivers across the nation, with the river grids so set up being brought under central jurisdiction to prevent inter-state and local bickerings over river water and bringing in farmer-friendly farm insurance across the country. I am sure,the Indian farmer would welcome such measures that will serve his longterm interest rather than a waiver of part of their debt.

Hope some one listens.

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