Agriculture: The Game Of Loans
Bernard Baruch, a financier who was economic advisor to the United States President Franklin D. Roosevelt once said, “Vote for the man who promises least, because he will be the least disappointing”. Is it a homily, we wonder, that farmers in Madhya Pradesh (MP) should have heard? Before the Madhya Pradesh Legislative Assembly polls, the Congress Party promised to waive loans of up to Rs 2 lakh of some 51 lakh farmers who had applied for the relief. As a poll strategy, it was scarcely innovative, for the tradition of wooing the populous community of Indian farmers with promises of debt write-offs dates way back to 1987.
Chaudhary Devi Lal, then chief minister of Haryana, had been the first to announce a loan waiver for the state’s farmers. The prevailing political environment demanded that he do. The 1980s was when the success of the Green Revolution of the preceding decade had brought to the fore new social groups. The economic ascendance of the middle peasants coalesced with the political ascendance of the Other Backward Classes (OBCs) around the Mandal Commission agitations to politically mobilise this hitherto under-represented group. As the farmers’ community got politically organised, it began to demand subsidies for agricultural inputs such as fertilisers, farm equipment, electricity, a minimum support price (MSP) for farm produce and subsequently, loan waivers.
India’s agrarian history has since been speckled with various episodes of mass loan waivers for the farming community by state governments. The measure has won votes for the political parties that reached out to farmers. In the last Assembly elections in Madhya Pradesh for instance, the pre-poll commitment made by the Indian National Congress to write off debts of farmers with banks and financial institutions of up to Rs 2 lakh within a certain time frame, did translate into votes. 
Not surprisinlgy, the Bharatiya Janata Party (BJP), now in the Opposition, alleges loopholes in the delivery system. Whether or not it was the tardy implementation of the programme or evaporation of the euphoria over the loan waivers, the Congress came a cropper in the Parliamentary elections in May 2019. BW Businessworld attempts to explore the trend, with a special focus on Madhya Pradesh, and to weigh the political and pecuniary gains of waiving loans of farmers. Have these sops for the Indian farmer uplifted their lot? What have these sops done to the lending institutions, beyond raising their non-performing assets? Madhya Pradesh as a case study
The Congress Party’s promise of loan waivers for farmers in Madhya Pradesh seemed to be in the same spirit as that of Devil Lal when he had offered the sop to farmers first in 1987. However, something went wrong somewhere with the implementation of the scheme. While the Congress government in the state headed by Chief Minister Kamal Nath, claims that some 2.1 million farmers have already benefitted from loan waivers, members of the Bharatiya Janata Party, now in the Opposition benches in the state Assembly, questions the delivery mechanism.
The BJP alleges that even farmers whose loans have been waived, have not received certificates from the banks concerned, making them seem like defaulters and so, ineligible for further loans. Former Madhya Pradesh chief minister Shivraj Singh Chauhan had reportedly demanded to see the “no dues” certificates of farmers. The ruling party apparently obliged him by sending him certificates of a small group of farmers that included Chauhan’s brother. 
In its pre-electoral pledge to farmers, the Congress Party had said, “All the loans of farmers up-to two lakh Rs will be waived off from cooperative and nationalised banks including current loan and past dues”. After the Assembly elections, the state’s Department of Farmers’ Welfare and Agriculture Development circulated an order stating, “Administration decides to waive off all the short terms crop loans unpaid up-to two lakh Rs of limit till 31st of March 2018. The amount was believed to be waived off by December 17, 2018.” The state has directed that regular loans of as much as Rs 50, 000 be waived, along with past dues (non-performing assets or NPAs of banks) up to Rs 2 lakh. Thunders BJP member of the state legislature (MLA) Devilal Dhakad, “There are farmers who filled colourful forms as an acknowledgment of loan waivers. The forms were colourful, but their intention was dark!” Dhakad wonders how farmers could apply for fresh loans for the next cropping season in the absence of the “no dues” certificates from banks.
Madhya Pradesh minister for agriculture Sachin Yadav, however, scotches these allegations. “We were so fast in waiving off the loans that many farmers have even started getting loans for the next cropping season,” says he. In the absence of the “no dues” certificates from banks, farmers technically remain defaulters and are not entitled to fresh loans, but Yadav insists that “loans for the next cropping season” are being released.
Chhaganlal Patidar, a farmer from Malhargarh in Mandsaur, has an account at the State Bank of India (SBI) branch at Botalganj Mhow-Neemuch. He says his account still shows an outstanding loan amount of Rs 2,54,502.96, which should logically have been waived in December 2018. Another farmer, Shivanarayan from the same town, with an account in a central rural bank in Madhya Pradesh, also says that an outstanding loan amount of Rs 2,28,780.37 is still showing in his account. Mandsaur incidentally, was the site of bloody protests by farmers in 2017, which is partly considered a reason why the BJP government was toppled in the last state polls.
Banshilal Gurjar, a senior BJP leader in the state, accuses the Congress government of double-crossing farmers and asserts that farmers did not get the “no dues” certificates from banks and financial institutions. Gurjar points out that most farmers get loans from regional cooperative financial societies, which have been asked to take on the burden of half the amount of the loan waivers.
Most of these societies have the kind of funds that are often not sufficient for running even their daily operations and so are unlikely to be able to bear the huge burden of the loan waivers. Agriculture minister Sachin Yadav says, “This will only strengthen the cooperative societies because we will assist them get more funds. We have already crossed the Rs 10, 000 crore limit and more than 51 lakh farmers had applied for loan waivers.”Sachin Yadav describes the Pradhan Mantri Kisan Samman Nidhi (PM-KISAN) that entitles farmers to Rs 6,000 of central support annually, as “a political gimmick”. He says, “Modi Ji believes in dictatorship, we don’t expect him to help us in this matter,” adding, “Well, for now we are managing it from our resources and we have no expectations from Modi ji. He doesn’t believe in a democratic structure.”
Diatribes apart, the fact that the massive loan waiver commitment of the Congress would jeopardise the state finances, cannot be wished away. (Please see table: The Opportunity Cost of Loan waivers). Says Dhakad, “I know that when they fail to fulfil the promise they (the MP government) will accuse the central government of not helping us with the farmers’ friendly scheme.” He describes the loan waiver as an illusion that helped the Congress win the state elections.
“We have communicated to the farmers that the loan waiver is not the permanent solution,” says Yadav defensively. “It is just a temporary step that we have taken to tide over the distress. We have a lot of other schemes.”
Loan waiver episodes
Episodes of loan waivers have since the late 1980s been used by political parties as electoral strategies. The trend has every time burdened the state exchequers with heavy costs. A research paper that has emanated from IIM Indore, titled The Politics of Farm Loan Waivers quantifies the opportunity cost (the loss that accrued for not using other alternatives) of writing off the debts of farmers in these states.
The authors show that the loans written off have sometimes amounted to as much as 669 per cent of the state budget for agriculture. (Please see chart: Opportunity costs of loan waivers). The authors also show that the promise of a loan waiver has not necessarily culminated in electoral gains. In five of seven episodes, the party promising loan waivers for farmers has lost the elections. (Please see chart: Loan Waivers and Poll Outcomes.)
The traditional carrot for farmers, a promise to write off loans taken from banks, has thus proved as ineffective a political bait as a financial option to combat agrarian distress. The Indian National Congress, that managed to win the Madhya Pradesh state polls on the strength of its promise to waive loans of farmers, for instance, lost out to the BJP in the 2019 Parliamentary elections. The Congress won just one Lok Sabha seat of 28 in the state, losing out at even the Guna constituency, which had been a Congress bastion since 1957.
The euphoria over farm loan waivers had obviously evaporated in the intervening year between the two polls. Or had the farmers heeded Baruch’s advice and simply prepared themselves to be least disappointed?
