Congress vice-president Rahul Gandhi is all for a farm-loan waiver to farmers in Uttar Pradesh, on the lines of the Rs 70,000-crore agricultural debt waiver under UPA-I in 2008. Now the ‘Crown Prince’ might be genuinely feeling sorry for the plight of farmers, but it’s not good enough to have one’s heart in the right place — the head must think right too.
Let’s throw some light on the section in the Reserve Bank of India’s Report on the Trend and Progress of Banking in India 2010-11 on UPA-I’s farm loan waiver. It said: “Agricultural NPAs (non-performing assets) to agricultural advances, which declined in 2008-09 due to the Agriculture Debt Waiver and Debt Relief Scheme, witnessed an increasing trend thereafter.”
In 2010-11, the agricultural sector contributed 44 per cent of the incremental NPAs of banks. It’s also important to note that in the fiscal immediately preceding the farm loan waiver and in the three years after that, higher growth was seen in credit to the agricultural sector.
Now who signs off on the Report of Trend and Progress of Banking in India? The RBI governor, who at that point in time was Duvvuri Subbarao. His successor, Raghuram Rajan, whom the Congress so likes to defend now, also did not share the party’s love for such waivers when he was in office. Speaking at the Indian Economic Association annual meet in Udaipur (27 December 2014), Rajan observed such waivers were “ineffective. In fact, they have constrained the credit flow, post waiver, to farmers… One question is how else we should deal with over-indebtedness in the farm sector. Also worth examining, is the very important issue of farmers’ suicide. How many of them are caused by indebtedness, especially to the formal (banking) system, and how much does the formal system alleviate indebtedness”.
As for the debt waiver, operationally, it was riddled with holes. The CAG’s report said that banks failed to issue certificates to farmers and obtain acknowledgment letters after they had availed of the benefits under the scheme. This was to ensure they were eligible for applying for fresh loans.
It’s fashionable for the Congress to say that the Narendra Modi sarkar is a suited-booted one. But if there was ever a dispensation that matched that profile, it was UPA-2.
Data for end-December 2013, shows gross NPAs (Rs 2,30,000 crore) and restructured loans (Rs 4,00,000 crore), added up to Rs 6,30,000 crore ($100 billion) or 10.2 per cent of banks’ advances. Around that time, 443 cases worth Rs 2,80,000 crore ($49.4 billion) had gone to the corporate debt restructuring cell, of which only 69 cases worth Rs 52,600 crore ($9 billion) were exited successfully. That said, should farm-loans be waived? No. But they can be restructured. The BJP should call the Congress’ bluff.
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Raghu Mohan is an award-winning senior journalist with 22 years of experience. He has worked for BW Businessworld since December 2006, and is currently its Deputy Editor. His area of expertise is banking – commercial, investment, and the regulatory. Previous stints include those at The Financial Express and Business India.