Wednesday, April 9, 2008

Farm Loan Waiver: Worst agricultural policy from the best brains in the Indian Finance Ministry

I,as an enlightened, educated citizen did not expect the worst policy to solve agricultural problem from the best brain of the Finance Ministry - P.Chidambaram. The scheme is totally flawed and solely is a populist approach to solve the problem. Instead of understanding the concern of the aam aadmi, he has fooled them and everyone as well. In typical Hindi style - "Chutiya banadiya". There are so many solutions to solve the agrarian crisis. Instead of attempting to do the same, a scheme that is full of loopholes has been presented merely to win elections.

It is a futile exercise. On the top of it, anybody who condemns is "anti-farmer" party. Big news channels want people to clap for BJP's opposition to the semantics of the scheme. When you say "no" to something, there is another reason (not just dislike) - not satisfied with the answer. This is precisely what BJP and Left parties are saying - but the govt propaganda is any party which opposes loan waiver is "Kisan Virodhi party". Sonia Gandhi is shouting on the top of her voice proclaiming it as a historic step - yes,historic - because such a nonsense policy has come out from the very team of Indian economy reformists - Manmohan Singh, Chidambaram and Montek singh Ahulwalia.

Let's analyze how the waiver doesn't help and will bear no fruit. Note that loan waiver targets defaulters w.r.t Bank loan and not private money lenders and also that waiver is given to farmers having only less than or equal to 2 hectares of land.

20.65 lakh farmers in total. Average size of land holdings is 4.03 hectares. Only 2% of these farmers have 2 hectares or less. Which means 98% of farmers will not get the waiver.
Also 80% is the recovery rate of loans taken from banks. It implies that the scheme is of no use even in this sense as for all evidences a large portion is borrowed from money lenders (private) and so scheme will not applicable to them

17.28 lakh farmers. Average size of land holding is 3.7 hectares => not applicable. Very few farmers have less than 2 hectares.
90% of the money is borrowed from private persons and 10% is what is borrowed from banks and have a very high recovery rate.

Himachal Pradesh:
4.70 lakh farmers. 68% of the farmers have less than 1 hectare but 90% recovery from co-operative banks. So, not going to benefit.


Vidharba region,specially has the highest number of suicides.
1.21 crore farmers and average size is 1.5 hectares. Good. However, 30 lakh farmers take money from outside sources as they are completely refused by banks for loans.
Marathwada, Vidharba - average size is 15 hectares. So, no use whatsoever.

42 lakh farmers. Average size is 1.66 hectares. Good. However, banks and the govt do not have enough info on how much farmers have borrowed from banks and government.

No assessment made at all by the Govt. Bank records indicate only 10% of the total farmers even afford to get loans as the remaining 90% don't qualify. So, who is going to get it?

48.20% of farmers have less than 1 hectare and 26.60% have 1-2 hectares. But small farmers work under big farmers. The big farmers themselves reeling under loans will not give it to smaller ones. So, who is going to get and who is not is murky. Karnataka State Farmers Association has outrightly rejected the scheme and is requesting the government to include everyone.

Andhra Pradesh:

More than 50% of farmers get the benefit as the average size is 1.4 hectares. Will surely help.

85% of farmers have less than 2 hectares. But government is not sure how it will help the banks here.

No assessment made, but 70 lakh farmers have less than 1 hectare.

Uttar Pradesh:

Has the highest number of farmers - 2.2 Crore and all have less than 2 hectares. But, government is still working.

Madhya Pradesh:
66.37 lakh farmers and average size is 2.5 hectares => not applicable
(The statistics taken from leading magazines)

Conclusion and Analysis:

1)If nearly 85% of farmers have a very good recovery rate w.r.t bank loans, how is this waiver going to help the farmers who have taken from money lenders? Chidambaram himself says he or any government doesn't keep a record of how much money and when a farmer takes from private money lenders. So, who is going to benefit this?? How are those farmers helped who have taken from private people??

2) What is the government going to give to banks so as to clear their balance sheets? Securities, hard cash or what? There is no answer as of now (i.e As of April 9th, 2008)

3) From where does this money come from? Definitely, there is no answer for this. Just to escape they have put the blame on NDA government. Absurd!!!
It will definitely come from honest tax payers money

4) Why the ceiling of 1or 2 hectares and not above? This is because 86% of farmers have this size holding. Good- but comes back to point 1). How will even this 86% going to benefit when nearly 90% of them have very good recovery rates.

5) What happens to a farmer who has already repaid the loan? He will not get the waiver

6) What about addressing the other causes of agricultural crisis? No idea. Hence it is historic and directionless scheme

7) How will money be disbursed? Through bureaucrats - forget it...It will never reach farmers.

8) Can't direct cash be deposited? How, most farmers don't even have bank account and even if they have, how will they get it. Some do have Kisan Credit Card, but that is not going to help

9) Why did the government not listen to Radhakrishna Commission which clearly stated that Government should avoid any such waiver

10) Is this what I expect from the brainy Singh and Chidambaram?? When asked about how one can track of private moneylenders, he clearly stated that he has no method and questioned everyone - if they have one, let them propose and the government will be very happy to accept.
He is very true, then why not consider that in the package and make it sound sensible.

I am pretty sure Sonia must have insisted on this as she knew she has disappointed the aam aadmi. There is nothing else to offer...So why not sound good to people.

Further, below is the list of articles for further reading which confirms my analysis from statistics taken from India Today
//Leading economist Swaminathan Aiyar says the excercise is futile
//Why farm loan waiver has caused troubles between states as each state asks for its portion
//Why farm loan waiver doesn't address the real problem
//What's gone wrong with the loan waiver
//Leading expert M.S. Swamninathan comments
//Bad politics, Bad economics from a panel of economists by India Today

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