Budget 2008-09: Lessened the Misery?

In the recent past, our budget—much to the delight of many—has become less of significance and more of a ritual, a mere statement of annual accounts. Which, indeed, what it is.  But this year it has become the talk of the town.

This animated interest has been engendered by the Finance Minister’s proposal to waive completely all agricultural loans disbursed by scheduled commercial banks, regional rural banks, and cooperative credit institutions up to March 31, 2007 to marginal farmers having landholding up to 1 hectare and small farmers of 1-2 hectares that remained overdue as on December 31, 2007 and which remained unpaid until February 29, 2008. He has also proposed a one-time settlement scheme to other farmers whose loans are overdue on December 31, 2007 and which remained unpaid until February 29, 2008, under which a rebate of 25% will be given against payment of the balance of 75%.

This Rs 60,000 cr waiver scheme has become the center of the debate. Many have dubbed it as mere palliative, for it has not touched the core of the problem. Indian agriculture, the mainstay of livelihood for 65% of the population—as the Prime Minister observed—is plagued by four deficits: “one, the public investment and credit deficit; two, the infrastructure deficit; three, the market economy deficit; and four, the knowledge deficit.” He further concluded that “taken together they are responsible for the development deficit in the agrarian and rural economy.” That being the reality, and there being no real attempt to bridge any of these deficits, it is no exaggeration to say that the current waiver scheme cannot really alter the plight of farmers, certainly on a sustainable basis.

Again, the scheme is meant only for the institutional borrowers, while those farmers who have borrowed from traditional moneylenders at exorbitant interest rates have to bear on as the silent sufferers of the burden of debt. It is these farmers, who—overburdened by the debt—are committing suicides, and the scheme thus means nothing to them. There is another argument, which, of course, is right: since the scheme is available only to those farmers whose landholding is not exceeding 2 hectares, it won’t relieve the distress of farmers hailing from dry-land tracts—where the landholding is usually above the prescribed limit, though the yield and the resultant economic returns from such tracts are much less vis-à-vis the farms of similar size, or even of lesser size, from irrigated tracts—for they are highly vulnerable to frequent droughts and other weather-related setbacks.

Some have even questioned the scheme on the grounds of ‘moral hazard’: they say that it has punished the farmers who were honest in repaying their loans, while rewarding the defaulters. It is also argued that such waivers by the government would only vitiate the loan-repayment culture in the country. Intriguingly, such a waiver, when announced in the budget that precedes an election year, is more prone to not only lose its credibility, but also set a bad precedent.  

True, all these arguments are valid and have their own place. For, can anyone afford to ignore the fact that ‘pro-growth and pro-business orientation’ of the government to ensure economic growth doesn’t mean leaving “many others out in the cold”? For instance, in the common parlance of a lending bank, a farmer with a few or no assets under his belt, is a high credit risk. It therefore quotes them high risk-premium, which means, higher interest rate. That is the paradox of the system: a poor farmer who is in dire need of money does not get it easily, while a rich man with the least need for money gets it at a cheaper interest rate and also easily, for he is of less credit-risk. This keeps the poor farmer poor, perpetually needing borrowed capital for tilling his land, while the rich becomes richer. Secondly, an overdue farmer-borrower is always considered ineligible for fresh loan, which means he cannot cultivate the land next season. It is these hard realities that compel one to take a positive view of whatever little good that the waiver scheme can do for the farming community. Even otherwise, a narrow commitment of the government to ‘growth’ alone can distort the quality of democracy by creating socio-politico-economic disturbances.

Looking to the enormity of disquiet being suffered by the agrarian society, one gets a feeling that what the government did is just inadequate. Intriguingly, based on a study that they have carried out on Indian banks, Robin Burgess and Rohini Pande have said: “One clear thing that we do learn from this paper is that coercion is needed to expand formal credit into backward rural areas and to force banks to lend to poorer individuals,” for the rural branch network expansion has increased secondary and tertiary sector output, besides increasing non-agricultural employment suggesting “a need to reconsider rural banking as a mechanism for attacking poverty.” Taking a cue from this, the government should, at once, revamp the rural credit delivery system by creating a pan-India institution by funding it through budget meant exclusively for lending to rural population.

All things considered, so long as the degradation of man by poverty is not solved, one tends to conclude that waivers of this nature cannot go waste. For, “the poorly endowed in the distribution of wealth that chance had made” are most worthy of utmost indulgence. And, a civilized society cannot afford to be apathetic towards its inmates.

(April, 2008)