Not by unaffordable farm loan waivers

Not by unaffordable farm loan waivers

Farmers are in distress, angry and on the warpath in different parts of the country. Peace has been bought in Maharashtra, with a promise to waive farm loans. These amount to Rs 1.34 lakh crore in the state and the state government would be hard put to bear the burden on its own. If the Centre helps out, it would have to open its purses to other states as well. Fiscal discipline would go for a toss. Writing off bank loans does not address the debt owed to moneylenders either. We need solutions better than loan waivers, to address farm distress.
The immediate problem is low prices, far below the minimum support prices (MSP) stipulated by the government and below the seasonal level for commodities that do not have an MSP. Disruption of traditional financing chains in rural markets by demonetisation is a large part of the explanation. The short-term solution is two-fold.
The government must ensure procurement at the MSP/seasonal price, remove stock holding limits on private trade, sell what it cannot store or process to private traders at the market price, even if at a loss. Simultaneously, it must give farmers a one-year breather on debt servicing, and make good the deficit on the banks’ books this would cause. Simultaneously, it must move on long-term solutions. These comprise infrastructure for storage, transport and processing of farm produce and a range of policies to make markets work for farmers, starting with the removal of curbs on marketing freedom and extending to replacement of ad hoc restrictions on external trade with a stable, liberal policy buttressed with tariffs that move within a predefined band. Farmers need to be organised into large producers’ companies or cooperatives, to give them economies of scale and bargaining clout vis-à-vis their organised buyers, industry and retail.
Instead of hobbling farmers with inefficient subsidy, the government should invest in irrigation, transport and storage infrastructure, R&D and environmental regulation while allowing markets to function in insurance, price discovery and boosting productivity.