Nitin gadkari gets it right on farm loans

Nitin gadkari gets it right on farm loans

Union minister Nitin Gadkari is spot on when he says farm loan waivers are not the answer to tackling rural distress. Making crop insurance more effective would certainly help, but a blanket loan waiver is clearly detrimental to the development of credit markets, adversely affects credit discipline and plain misallocates governmental funds that ought to shore up much-needed investment.
Over half the cropped area depends on rains for water. We need to boost agricultural productivity with a revamped irrigation and canal network, improved rural and district roads, besides investment in cold chains and better markets. We also need greater financial inclusion and timely access to agricultural credit from formal finance, but resorting to loan waivers would perversely disrupt and stymie credit markets.
Blanket waivers are entirely avoidable. The point is that the myriad problems of Indian agriculture are structural, which require a multi-pronged approach and long-term solutions. Quick fixes like waivers make matters worse.
It is notable that the Union budget aims to increase the coverage of the Centre’s crop insurance scheme, Fasal Bima Yojana, to 40% of the cropped area this fiscal, up from 30% in the last, but that still leaves large areas without cover. Restrictions on market freedoms in agriculture must go, and rural power supply must enable food processing and climate-controlled storage. Agricultural credit societies need proper accounts and regulation on par with banks.
Farmers need formal credit links and liberal access to credit. Futures and options markets must function. Long-term Irrigation Fund needs closer monitoring on the ground. The promise of minimum support must be realised in practice. Loan waivers have populist appeal, but achieve little.