The government should promote a healthy culture of credit, invest in agriculture and address distortions in the agricultural sector instead of forgoing farmers’ loans regardless of their level of distress, according to a joint study by NABARD and Bharat Krishak Samaj.
The study, “Agricultural loan waivers in India: assessing the impact and the way forward,” was released on Friday.
“The production cycle coupled with other factors, makes it impossible for farmers not to be in debt, and income instability makes it difficult for farmers to come [out of] a cycle of indebtedness,” the study says. It covered agricultural loan forgiveness programs in Punjab, Uttar Pradesh and Maharashtra.
Farmers in Punjab borrowed the largest amounts by farmer category and their reliance on non-institutional sources was also highest across all farmer categories, according to the study. The credit needs of farmers in Uttar Pradesh and Maharashtra were similar, while the share of loans from non-institutional sources was lower in Uttar Pradesh.
Decisions by central and state governments to cancel arrears and provide access to new credit lead to “debt cyclicality” as farmers face multiple distortions, making farming business volatile and unsustainable .
Agricultural Loan Forgiveness Programs aimed to provide relief to farmers during floods and droughts, “by increasing the frequency of waivers and universalizing its distribution which is mostly unrelated to farmers’ distress levels” , according to the study.
He suggested a waiver could be booked as a toll, as it was originally designed to be a one-time event for situations of extreme distress.
A waiver only improves a farmer’s financial health for a short period of time, and “in a short time that beneficiary farmer is back in debt and bound to need another round of waivers soon,” he said. he declared.
The study suggested creating a real-time dynamic farmers’ distress index, which can integrate available high-frequency data on weather conditions, existing and future climate conditions, farmers’ debt burden and data on agricultural products.
The Distress Index could be monitored in real time to track farmers’ level of distress and the results could be used by policy makers to plan and design timely interventions to support farmers, according to the study.