Farm Loan Waivers

I am surprised, even shocked, by some of my learned friends shouting from their roof-tops, over the recent farm loan waivers by a few state governments. Some of them, clearly masquerading as economists,  express " concern" about "profligate spending" through these waivers. " As it is, the government's finances are not good. How can the government go on this spending binge? How will the budget support it? Where will the govt raise funds for this from?" ...   and some particularly relish adding " evil Modi!" to that. After all, anything and everything has to stop with " evil Modi!".  Otherwise one would never be able to establish that one is " balanced" in his views.   So much so, for modern day intellectuals.

Of course, even a nursery school kid will tell you that if you throw away your money into something that will not return the money, that money basically is written off, and it is not wise spending. We do not need economists to point that out. Economics 101 will tell you that such loan waivers will fall into the " unplanned expenditure" category, and will add to the already strained finances of the state governments. State governments, which announce such waivers, have to fund that through internal accruals, or go and beg the Central Government, which, at it's discretion, may budge partially. Who pays the bill? The hapless tax payer...   direct taxes, indirect taxes, borrowings... etc fund this...  so, it is amply evident that loan waivers are not good for the Income/ Expenditure statements of State Governments ( ultimately spilling over to the Centre). Governments may increase taxes, or borrow more to tide this over, and often results in their credit ratings getting lowered, increasing their cost of capital further. At the national level, exchange of the Rupee gets affected; companies cannot anymore borrow at favourable interest rates from abroad... etc etc.

So, if it is so apparent, why are the State Governments doing it? And why is the Central Government looking askance? Before we get into that, let us look at a few other areas of "leakage" of tax payer money, which these "Economists" and some of my intellectual friends are sweeping under the carpet.

First instance: Air-India. Accumulated losses more than Rs. 60,000 crores. All taxpayer money going down the drain. The more Air India flies, the more it loses. Strangely, all these Economists are against privatizing Air India. They play a pivotal role in form public opinion against it, and the Opposition parties are quick to seize on that, and instigate Trade Unions to go on indefinite strike against privatization.

Second Instance: Bad and Doubtful Debts of Private companies. Banks are saddled with up to 8 lakh crores, as per a recent estimate, and growing. Will any of these economists protest against writing off these assets? Other than crying " go and recover from business sharks" what else can they offer, as a meaningful solution? Is it as simple as raiding the biz houses and recovering sacks of money supposedly hidden away by biz magnates? How much more disingenuous can that be? If banks can somehow write off bad debts of business houses, why cant they write off bad debts of the poor farmer who has no collateral or no other means of supporting himself and his family? Remember, after banks write off the bad debts, their balance sheets are strained, and taxpayer money is used again, for recapitalizing it and getting the banks back to normal.

Third Instance: For decades, most state governments have been giving free electrical power to the farmers and downtrodden. None of these economists intellectuals ever protested other than the cliched " oh! this will spoil the finances!" , did they? Who foots the bill? Taxpayer. You and me. If this freebie can continue indefinitely, why not write off farm loans too?

Fourth Instance: Freebies by various state governments. Free TVs, laptops, mid day meals, sewing machines, bicycles, mobile phones, mixies...   you name it, they get it all....   all at taxpayer's expense. Was it ever stopped?

This list is endless. The point is - there are already a whole heap of direct and indirect write-offs and waivers that are draining the exchequer. Farm loans only add to it. And all these will most certainly exacerbate the fiscal balance of the State Governments and the Centre, alike.

Back to that question now. So, then, WHY are the state governments now doing it again, as had many of them done in the past? The answer lies in three successively failed monsoons. There is no water anywhere, except in the ocean. The hapless farmer is pushed to his limits, unable to support his family even for two square meals in a day. Not to mention private loan sharks  baying for his blood. Farmer suicides are not rhetorical. They are a harsh reality. A bitter reminder, that successive governments over the last 70 years at the centre and the state, have still left 55% of agriculture land TOTALLY dependent on the monsoon, and close to 70% of the working population are farmers.  Where did all the "development funds" to improve the lot of the farmer go all these years? No no, not to the Swiss banks!

Given this state of affairs, farm loan waivers, though undesirable and harm, are UNAVOIDABLE under the circumstances. Unless those economists and some of my dear friends are saying " it is OK if a few thousand farmers and their families end their lives in utter desperation, but the State's finances cannot be imprudently used for waivers". I view this waiver as an extreme emergency measure, whichever government, belonging to whichever political party does it. A necessary evil, as it were.

So then, what are the long term solutions to this problem of farm loan waiver? To me, part of the answer lies in the SKILL INDIA initiative, or whatever rhetorical name it is called by. It is utterly unacceptable that a progressive country ours, has 70% of its population dependent on agriculture. As a comparison, the USA with 300 million population, has less than 3% of it's population as farmers, and is still a nett exporter of Agriculture products. The government urgently needs a long term re-skilling strategy , to skill the "uneducated" farmer into in manufacturing and services sectors. That obvisouly will have to start at the classroom level, by dramatically recasting our outdated education system. And move on into vocational courses, where the individual is trained in a particular trade- be it working in a textile mill, a cloth manufacturing plant, a toy making plant.. or whatever...  train him in a particular, allow him to excel, and create an environment where he stands a reasonable chance of a skilled job , preferably in or near his own place ( rather than crowding the big cities which are already bursting at their seams).

Next, aggressively introduce modern agriculture equipment and push drip irrigation and other modern methods of increasing agri productivity. Repeal draconian labour laws which prevent collective farming and getting machines to work instead of man. This should be done progressively, while re-skilling happens, in order to minimize any social unrest.

Also, aggressively invest long term reduction of dependence on the skies. Increase water bodies. Prevent lakes and ponds from being closed down. Deepen them wherever possible. Involve local population in that effort. Build more dams. (Damn the environmentalists, who are the biggest stumbling block in economic development).  Create more check-dams, which are much smaller in size than the conventional dams, but which play a very important role in last-mile water storage and release. Seriously work on interlinking of rivers. At least within the  state, to start with, if riparian issues crop up. Chandrababu Naidu has shown the way in Andhra, by interlinking the Krishna and Godavari within the state, in a span of just 11 months, bring in tens of thousands of hectares of land into additional cultivation. If the government will, there certainly is a way.

All the above, be it education reforms, free electricity bans, interlinking of rivers, etc...  are unfortunately either in the State List or in the Concurrent List. Which means that the Centre cannot act suo moto, and need state governments to display the kind of political will that is needed to push these reforms. Sadly none of them are displaying that, at the moment.

Until these reforms happen, and until the over-reliance on agriculture and the rain-gods is reduced, we will continue to witness such loan waivers in the future too. And until then, some of these Economists and some of my esteemed friends, can continue to score brownie points.