Freebie in agriculture sector can become the reason behind India’s next NPA crisis

NPA, Indian, Agriculture, sector, loan, waiver

More than a decade ago before, the 2009 general election, Congress, to win the election made a poor move – waiver of farm loans. The party won the election, but it set a flawed precedent that every party and government is forced to follow. In the states like Punjab and Haryana, where the credit penetration in the agriculture sector is highest, the farmers stop paying dues before every assembly or general election anticipating loan waivers by the government.

Now Patiala Central Co-operative bank limited has complained to the Supreme Court that the farmers from Punjab have stopped paying loans because they expect the government to waive the loans. Since the populist move UPA a decade ago, it has become a norm for the political parties to announce farm loan waivers in election manifestos. 

Although hardly any party/government can implement it successfully, it sends a bad signal because the farmers start delaying the repayment anticipating loan waivers.

As per a recent report Reserve Bank of India, bad loans in the agriculture and MSME sector are on the rise even as the banks report an overall decline in Non-performing assets.  

In the last two years of the Coronavirus pandemic, the agriculture sector has performed comparatively well as opposed to a decline in services and stagnation in manufacturing. As per RBI reports, the total credit to the agriculture and allied sector stood at around 13.84 lakh crore rupees with a healthy double digital growth of 10.4 per cent in November 2021 as compared to 7 per cent in 2020. 

For almost five years before the pandemic, the growth in the agriculture sector was dismal due to muted global demand, poor weather, and various other factors. However, in the last two years, agricultural productivity is on the rise and exports are growing exponentially. 

The Union government brought the three agriculture bills to give further impetus to the sector, but due to farmers’ protests in a few states, who benefitted immensely from the old regime, the bills were rolled back. Now the farmers from Punjab, the state that was at the forefront of the anti-farm bills protests, are refusing to pay the loans despite good income because they expect the upcoming government to waive the loans.

In the last few years, the Modi government took various steps on its suggestions to solve farmers’ distress. In June 2016, Pradhan Mantri Fasal Bima Yojna (PMFBY) was rolled out to insure crops. The insurance scheme made farming as secure as any other profession. If a crop suffers due to any reason like drought, excessive rain, etc., insurers will pay the output price.

To provide irrigation facilities to farmers across the country, PM Modi launched Pradhan Mantri Krishi Sinchai Yojana (PMKSY) and pumped money into the National Bank for Agriculture and Rural Development (NABARD) to increase credit penetration to farmers. These steps have improved the farm productivity and availability of credit to the common farmers.

The government is trying to solve the post-production problem by incentivizing exports. As India produces more than it consumes, the price of agriculture produces crashes and this could not be solved without encouraging exports. And the result of this is an exponential rise in farm exports, which has crossed 41 billion dollars in FY 21. 

However, the efforts of the Modi government are being neutralized by the opposition parties through populist moves to win the elections. The Congress party won the MP, Rajasthan, and Chattishgarh election on the promise of farm loan waiver but it has not been implemented in true spirit in any state and now it is doing the same to win in Punjab. It seems farm loan waivers are the only arsenal left in opposition parties’ coffers to defeat the BJP.

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