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Who can ignore the farmers in India when they constitute such a large population in India?It is the farmers who are nowadays doing all the arm-twisting with the politicians and get the loan waivers at regular intervals. After UP and Maharashtra, now Punjab too has been forced to give the loan waiver demand of the farmers. The farmers of the rest of India are going to do the same and get loan waivers sooner or later.Poverty of FarmersThere is no denying to the fact, that farmers in India are poor. It is because the average farm sizes in India are too small and too many people are dependent on agriculture sector and living in villages. The agricultural sector’s contribution in the GDP of India has been considerably coming down over the year.For example, the composition of Agriculture & allied, Industry, and Services sector was 51.81%, 14.16%, and 33.25%, respectively at current prices in 1950-51. Share of Agriculture & allied sector has declined at 18.20% in 2013-14. Share of Services sector has improved to 57.03%. Share of Industry sector has also increased to 24.77% according to the Government statistics. [1]Agriculture sector has not been able to keep pace with the growth of other sectors.Even though, the contribution of agriculture in the national GDP is just 18%, more than 50% of the India’s population still lives in villages and is dependent on agriculture. Hence, the per-capita income of farmers is almost one-third of the rest of the country. However, their living cost is also much lesser since they live in their own ancestral house in their villages and do most of their work themselves. They also have the social support system of extended family and of their relatives who had been staying with them since ages.Myth of Excessive Farmer SuicideAccording to the estimates based on Census 2011, there are 118.9 million cultivators across the country or 24.6% of the total workforce of over 481 million. The figure below shows the number and percentage of cultivators, according to Census, since 1951 to 2011. [2]They constitute of around 9.5% of the population of India. This figure perhaps does not include the figure of the agricultural laborer.According The Central government statistics on suicides in the farming sector vis-à-vis total number of suicides in India. "A total of 12,602 persons involved in farming sector -- 8,007 farmers-cultivators and 4,595 agricultural labourers - committed suicide during 2015, accounting for 9.4% of total suicide victims (133,623) in the country,".[3]It is quite evident that the suicide rate of farmers is almost same as that of the average suicide rate of India. However, media and politicians of our country makes farmers suicide such a massive issue which gives the impression as if farmers are the only people in India who are committing suicide. They conveniently ignore the suicide rates of other segments. For example, several students of prestigious students in IITs too commit suicide every year but that hardly makes a news in the media.There had been THREE suicides in less than FIVE months in IIT Kharagpur alone where the number of students would not be more than 2000-3000. The suicide rates of IITs must be serval times more than the average suicide rate of India.[4]Solution of Farmer’s ProblemThere is no quick fix solutions of the problems of farmers in India. You can’t increase the farm product prices since it would increase inflation and the rest of India would be forced to pay for it. The farm prices has to be left to the market else it shall create more problems than solve it. Similarly, loan waiver is also not sustainable since this money too has to be paid by the taxpayer by increasing their tax rates.The only solution is to reduce the number of people dependent on farming in India by giving them opportunities in business and industries. This is happening gradually over the years. For example, the population of people engaged in farming has declined from nearly 50% in 1951 to 24% in 2011 (See Figure below), [5]which means the number of farmers has come down by half in percentage term. This number must be reduced much more in future.It is important for us to know that in 1870, almost 50 percent of the US population was employed in agriculture. However, as of 2008, less than 2 percent of the population is directly employed in agriculture.[6]In India too, the people engaged in farming must come down to less than 10% to make farming a profitable proposition.This is going to take quite some time as it is not easy to create more jobs in manufacturing and service sectors which too are facing competitions from international companies and using automation and information technology extensively.The change has to be gradual and steady.We must learn to analyze the problems rationally rather than emotionally to find a workable solution of a problem rather than blaming others for the problems of a particular sector or society.Awdhesh Singh (अवधेश सिंह)Footnotes[1] Sector-wise contribution of GDP of India[2] How many farmers does India really have?[3] Over 12,000 farmer suicides per year, Centre tells Supreme Court - Times of India[4] What's Wrong With IIT-Kharagpur? Yet Another Student Commits Suicide This Month[5] How many farmers does India really have?[6] Agriculture in the United States - Wikipedia

Philosopher George Santayana once said, “Those who cannot remember the past are condemned to repeat it.” Experience tells us that loan waivers have not been successful in solving the Indian farmers’ problems, so why should this time be any different? The root causes – lack of access to institutional credit, rising cost of inputs like seeds and pesticides required for farming, and the inability to receive remunerative prices – are not being addressed.What is the difference between a loan write-off and a loan waiver?Loan write-offs are not the same as loan waivers. A loan write-off is an accounting entry which banks make when they have determined it is unlikely a particular loan will be repaid. In this case, the loan is said to have become a non-performing asset (NPA) which no longer generates any income.For more accurate reporting of income from period to period, banks maintain a contra-asset account in the balance sheet known the loan loss reserve. The value of the loan loss reserve is based on the amount that is not expected to be recovered in the future, and is determined with reference to historical information on loan defaults. Loan loss provisions are recorded in the income statement as an expense to adjust the loan loss reserve so that it is sufficient to cover expected defaults. This reduces pre-tax income.When the loan is finally written off at the end of this process, only balance sheet accounts are affected, namely the loan loss reserve and outstanding loan. This is recorded as a debit to the to loan loss reserve and a credit to the outstanding loan. Consequently, the net portfolio on balance sheet is unchanged. From this, it can be seen that the primary purpose of a loan write-off is to remove NPAs from the books and keep things tidy.On the other hand, a loan waiver is a promise by the bank not to insist on its strict legal right to recover the loan according to the original terms of the loan contract. Therefore, once the bank has waived a loan, it cannot turn around and insist that the borrower should pay because it has already relinquished its right to do so and will be estopped by the court if it tries to do so. By contrast, a loan write-off does not amount to a waiver, and the bank can continue to pursue the borrower.Why are people upset about the loan waiver?Firstly, banks ostensibly benefited more than farmers from the 2008 Agricultural Debt Waiver and Debt Relief Scheme (“2008 waiver”). The Indian government provided banks with Rs 60,000 crore reimbursement over three years in the midst of the global financial crisis. This allowed them to recover otherwise unrecoverable non-performing agricultural loans, many of which had been given out to meet the priority sector lending requirement but had gone bad because of, inter alia, the risks inherent in agriculture.[1]Yet, the 2008 waiver did not benefit small and marginal farmers greatly, as they relied more on informal sources of credit like moneylenders, landlords or relatives. A 2005 report by the NSSO on farmer indebtedness based on 2003 data showed that only 23% of farmers with ownership holdings of land less than 0.01 hectares had access to formal credit, and this figure rose to 58% for farmers with ownership holdings of land between 1-2 hectares.[2]More recently, the 2017 NABARD All India Rural Financial Inclusion Survey reported that 40% of loans continue to be taken from. Respondents cited ease of availability, no stringent timelines for repayment, no documentation formalities required, lower or no interest expected, and faith in families and friends as reasons why they preferred to take loans from non-institutional sources.[3]Secondly, the criteria used to limit the beneficiaries of 2008 waiver did not adequately consider the socioeconomic reality of farmers. Under the 2008 waiver, 100% of the overdues owed to small and marginal farmers in “ownership” of “up to 2 hectares of land”, and 25% of the overdues of larger farmers were waived.[4]Banks generally require land title as a guarantee, which meant that sharecroppers, tenant farmers and labourers who did not own land were excluded. On a related note, critics have pointed out that the land ownership requirement means that landlords are more well positioned to benefit from a loan waiver than the sharecroppers who actually cultivate the land.[5] Sharecropping agreements involve the landlord permitting the sharecropper to farm on a parcel of land in exchange for a portion of the crop.[6]Consequently, sharecroppers often have to borrow money from moneylenders to invest in their crop so that they give their dues to the landlord. However, as they do not own the land, they fall outside the purview of loan waivers. To tackle this issue, the Indian government responded by rolling out another scheme, “Bhoomi Heen Kisan” in 2014 to provide Rs. 8 lakh crores credit support ( basically, more loans!) to 5 lakh joint farming groups.[7]Agricultural land in rural India is often jointly held[8]by family members and more likely to exceed 2 hectares. Similarly, some farmers may have larger holdings, not because they are richer but because their land is less productive. For example, an opinion piece published in The Hindu[9] shed light on how in Vidharba, the average landholding size is 3.03 hectares, and up to 50 per cent of Vidharba’s farmers were above the two-hectare criterion for the 100% waiver. This was not because they were big landlords but because their land was less productive. By contrast, the farmers of Western Maharashtra with smaller, well-irrigated and more productive holdings who were better off in most regards, were more likely to meet the two-hectare criterion and therefore stood to gain more from the waiver.If that weren’t bad enough, it is not inconceivable that corrupt bank officials will ensure that only a fraction of the allocated money reaches the already limited pool of loan waiver beneficiaries. In a survey on the IRDP loan program implemented in 1980, 67% of the beneficiary respondents reported that they had paid a bribe for the loan to be sanctioned.[10]Thirdly, loan waivers encourage a bad credit culture that hurts both banks and farmers. Honest farmers are penalized for repaying their loans on time when defaulters get their loans waived. Some of them who realize this may decide to go rogue and willingly default so that they can avail themselves of the waiver and save money. This “borrower moral hazard” was documented in working paper by the World Bank on the 2008 waiver, which noted that borrowers in high-bailout districts started defaulting in large numbers after all the non-performing loans in these districts had been written off.[11] Not long ago, announcements of farm loan waivers in 2017 by some states led HDFC Bank’s NPA ratio to rise to 1.24% for the June quarter from 1.05% in the previous quarter. More than half of the increase in bad loans was from its agriculture portfolio.[12]Finally, loan waivers worsen the fiscal positions of the state and leave less money for investments in infrastructure like roads, electricity and irrigation systems which could help farmers more in the long-run. According to a recent article published in December 2018 by the Hindustan Times, the newly formed Congress governments in Madhya Pradesh, Rajasthan and Chhattisgarh may not have adequate fiscal space or funds left to implement other poll promises in the current financial year after announcing farm loan waivers.[13] Pressure to provide loan waivers is mounting in other states as well – In Odisha, Chief Minister Naveen Patnaik criticized the opposition political parties who demanded a waiver, saying that it would make the State Government bankrupt.[14]To conclude, the farm loan waiver looks like a negative-sum game for everyone involved and does little to meaningfully improve the lives of farmers – why should anyone (except the leaders scoring brownie points during the elections) be happy about it?Footnotes[1] The economic effects of India’s farm loan bailout: business as usual?[2] India’s Agricultural Debt Waiver Scheme, 2008[3] https://www.nabard.org/auth/writereaddata/tender/1608180417NABARD-Repo-16_Web_P.pdf [4] Page on thehindubusinessline.com[5] https://economictimes.indiatimes.com/blogs/cursor/farmers-need-remunerative-prices-not-debt-waiver-to-end-rural-distress/ [6] http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.378.8225&rep=rep1&type=pdf [7] Finance to 5 Lakh Joint Farming Groups of “Bhoomi Heen Kisan” through Nabard in the Current Financial Year[8] https://www.indiaagronet.com/indiaagronet/agri_economics/CONTENTS/Land%20Tenure.htm [9] https://www.thehindu.com/todays-paper/tp-opinion/Oh-What-a-lovely-waiver/article15181680.ece [10] http://shodhganga.inflibnet.ac.in/bitstream/10603/187194/14/14_chapter%208.pdf [11] The economic effects of India’s farm loan bailout: business as usual?[12] https://www.livemint.com/Money/8oTRtiFqkk1pMdHhnZ6wNI/HDFC-Banks-impeccable-asset-quality-gets-a-farm-loan-waiver.html [13] https://www.hindustantimes.com/india-news/after-waivers-fund-crunch-for-3-states/story-GdRlDNbVxo6aAVLPkFMHzO.html [14] http://www.newindianexpress.com/states/odisha/2018/dec/22/loan-waiver-will-make-state-bankrupt-cm-1915059.html

There is nothing wrong being pro-farmers. But, if you just focus on farming alone ignoring all other sectors you will remain in poverty and misery.Think of all the categories a middle class person spends his budget on.HousingFoodEducationHealthcareTransportationElectricity/waterClothes and apparelSecurity and safety relatedEntertainment, events, cultureFood is just one among the 8 or 10 things you spend your money on. It is important, but so is water and healthcare.These 8–10 sectors is what the government spends its money too. You cannot just ask them to invest all their budget and most of the subsidies on farmers. Right now it is happening as farm loan waivers and other schemes are a significant part of state budgets.How much do we talk about other sectors compared to food? Why would you employ more people on food compared to other sectors where you spend more money?In India we give unusual importance to farming and rural areas. Ironically a lot of these statements come from people who have comfortably settled in urban India using its infrastructure and job opportunities. For us to become developed we have to get most of the other people in farming out of that and employ them in manufacturing. That is the only way other countries got developed.