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Maharashtra looks at debt relief options for farmers

LiveMint logoLiveMint 09-04-2017 Abhiram Ghadyalpatil

Mumbai: The Bharatiya Janata Party-led government in Maharashtra is studying various options to provide relief to debt-ridden farmers, current and former government officials who have worked on such programmes said. 

Though chief minister Devendra Fadnavis has not yet officially committed his government to a farm loan waiver, he has asked officials and sector experts to study available models and even new schemes to reduce if not erase the debt burden on genuinely deserving farmers, these officials said. 

“We have got ourselves into this situation where a debt waiver or something of that sort has to be given. As the chief minister has pointed out, the main questions now are when and how, and we are considering some options,” said a senior bureaucrat who did not want to be named.

ALSO READ : The politics and economics of farm loan waivers

The official is part of a team tasked with studying the Uttar Pradesh model of farm loan waiver, including Kisan Rahat Bonds (farmer relief bonds) that the UP government intends to issue. 

The experts, and serving as well as former officials Mint spoke with, summed up four broad “concerns or areas” the government should keep in mind before formalizing its debt-relief proposal: identifying the deserving farmers; arriving at a reasonable cap to be imposed on the extent of relief the government could offer; ensuring that the relief scheme does not wreak havoc on credit discipline; and ensuring the relief reaches the deserving farmers. 

Nashik-based farm sector expert, activist and commentator Milind Murugkar insists on “precise targetting of beneficiaries”.

ALSO READ : Why Narendra Modi’s farm loan waiver promise in UP was bad politics too

“Farm debt-waiver is a bad idea in principle, but it is now difficult for the BJP government in Maharashtra to refuse it after what the UP government has done. In this situation, the best that the government can do to make the debt-waiver really useful is to target the small and marginal farmers. The question now is, does the government have data on these farmers that can be used to target the relief? I am not sure the government has the data,” Murugkar said, expressing concern that waiver may end up benefiting the wrong people. 

According to Fadnavis, 3.6 million farmers in the state owe Rs30,500 crore in outstanding debt to lenders. But the government has not confirmed that these 3.6 million cultivators fall in the small and marginal category. Of Maharashtra’s 13.6 million farmers, 78% are small and marginal with holdings of less than 2 hectares each. A former agriculture department official who was part of the Maharashtra government’s team that implemented the farm debt-waiver in 2008-09 said the government must take care to encourage those farmers who can repay at least some of their debt.

This person, who requested anonymity, suggested two schemes that the Maharashtra government and the centre could deploy.

ALSO READ : RBI governor Urjit Patel says farm loan waiver a ‘moral hazard’

“For the poorest of the poor farmers, both the governments should implement a 25-25-50 scheme, under which the farmer pays 25% of his outstanding debt, the state government pays 25%, and the balance 50% has to be restructured by the state in consultation with Centre and Reserve Bank of India over the next one or two years. For those farmers who can repay 50% of their debt, the state government should implement a 50-50 scheme under which it pays the remaining 50%. These two schemes take care of concerns raised by the RBI governor and State Bank of India chairperson, encourage better-off farmers to repay debt and incentivise credit discipline, and ensures that cash flow is alive,” the former bureaucrat said. 

He said these two schemes would cost the government one-third of the total loan waiver cost of Rs30,500 crore.

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