SBI chairperson Arundhati Bhattacharya has already lamented that the farm loan waiver destroys 'credit discipline', which makes farmers habitual defaulters. Between 2012 and 2015, Rs 1.14 lakh crore of corporate NPAs have been written off. Surprisingly, no state govt was asked to bear the burden from its own revenues. Even for the Rs 4 lakh cr of NPAs that credit rating agency 'India Ratings' expects banks to write off in the near future, no state govt is asked to take on the burden. No chief of any PS bank objects to these write offs. The question that the farmers across the nation and UP chief minister should raise is: Why should the state govt be asked to waive farm loans from its own resources? Why can't nationalised banks do it the same way they do in the case of corporate loan waivers?
The entire farm loan waiver that UP has provided is less than the bad debt of just one big steel company – Jindal Steel and Power, which owes Rs 44,140 crore. Bhushan Steel, too, has a bad debt to the tune of Rs 44,478 crore. These two big industries are among the steel companies that are together seeking loan waiver of Rs 1.5 lakh crore. Unlike farm loans, no state govt is being asked to write off corporate loans from its own revenues.
With UP picking up the courage to write off farm loans, pressure will now build for similar loan waivers in other states. The demand will get an added impetus in Karnataka, Gujarat, Andhra Pradesh, Telangana, Madhya Pradesh, Haryana, Orissa and states of the Northeast. Considering that more than 3.18 lakh farmers have committed suicide across the country in the past 21 years and roughly 70 per cent of these are related to mounting indebtedness, UP farm loan waiver will turn out to be a game changer.
In addition to the loan waiver, the UP chief minister has very clearly laid a road map for the betterment of agriculture in future. The decision to procure 80 lakh tones of wheat, for which 5000 purchase centres are being set up, is the single most important initiative that can herald a new era for agriculture.
When the entire policy directive is to dismantle markets regulated by Agricultural Produce Marketing Committee (APMC), and in the process deny the farmers assured price by way of MSP leading to agrarian distress, UP is likely to reinvigorate farming by ensuring assured price to farmers.
Adityanath's decision to waive farm loans, create more marketing centres and procure wheat massively from the farmers at the minimum support price is against the dictate of the WB-IMF-WTO axis. It is also against the policy of Modi sarkar and the Niti Ayog. As Manmohanomics desired, Modi and Niti Ayog want the private sector to take over the procurement, storage and distribution of farm produce, duly killing the concept of MSP. Public distribution system is slowly gagged. UP's decisions are against all the established policies of Modi sarkar and the entrenched anti-farmer and anti-rural mindset of the mainstream economists.
RBI Governor on farm loan waiver
According to RBI Governor Urjit Patel, the pitfalls of farm loan waiver are: (1) Undermines an honest credit culture. (2) Impacts credit discipline. (3) Blunts incentives for future borrowers to repay. (4) Waiver engenders moral hazard. (5) UP govt waive-off might inspire other state govts to waive-off farmer loans as well. (6) Entails at the end of the day transfer from tax payers to borrowers. (7) Overall govt borrowing goes up. (8) Yields on govt bonds also are impacted. (9) Leads to the crowding out of private borrowers as higher govt borrowing can lead to an increase in cost of borrowing for others. (10) We need to create a consensus such that loan waiver promises are eschewed. (11) Sub-sovereign fiscal challenges in this context could eventually affect the national balance sheet. (12) Essentially bad economics can screw up the economic and financial situation of the nation.
It is not just Urjit Patel who holds such views, but SBI chairperson Arundhati Bhattacharya, bureaucrats, bankers, economists and almost all the experts have similar opinion on farm loan waiver. After the Swaminathan Committee submitted its report on farm crisis a decade ago, UPA-I government reluctantly announced a farm loan waiver of Rs 70,000 crore. All hell broke out. Pundits howled that banks were going to collapse because of this decision.
Nevertheless, the question is where have all these discourses been when it comes to the issue of corporate defaults and loan write-offs?
The Gujarat government gave a loan of Rs 558.58 crore to the Tata to set up the Nano car plant at Sanand, near Ahmedabad. The Gujarat government has acknowledged that the massive loan was given at an interest rate of 0.1 per cent, to be paid back in 20 years. In other words, this huge loan was virtually an interest free long term loan. In another case, steel tycoon, Laxmi Narayan Mittal, was given Rs 1,200 crore by the Punjab government to invest in the Bathinda refinery. He also got the loan at a dirt cheaprate of interest of 0.1 per cent.
As is well known, corporates have defaulted on several lakh crores of rupees of bank loans over the years. These defaulters have been treated with kid gloves. Over the years, a huge amount of corporate loans have been written off.
If the issue of moral hazard comes up with farmer loan waive-offs, it comes up enormously more with corporate loan write-offs. And given that a large portion of what is technically a write-off is actually a waive-off, the case for moral hazard in this case is really very strong. The pundits could have talked about this as well.
Over and above this, corporate loan write-offs have led to the situation of diminishing bank capital. This has led to the Central government having to recapitalise the PS banks over the years. Between 2009 and now, the amount of money put in has been greater than Rs 1,30,000 crore. This money is ultimately borrowed by the government and leads to crowding out, higher interest rates and a weaker national balance sheet.
All these issues pointed out by the pundits in case of farm loan waive-offs apply more to corporate write-offs. But not a word has been spoken against them. 'Suit-boot ki sarkar' and the matching 'Suit-boot ke bankers and economists!'
Moral of the story: If mother-in-law (corporate) breaks the pot, it is just a mud pot. In case, the daughter-in-law (farmer) breaks it, the pot automatically becomes a golden one.
1) 'Trend worth following' by Devinder Sharma in Orissa Post (April 11, 2017).
2) 'Dear Mr Urjit Patel, Have You Ever Heard of Wasim Barelvi?' from Vivek Kaul's Diary (April 10, 2017).
3) 'Does the banking system really want to help farmers?' by Devinder Sharma in The Wire (March 30, 2017).
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