The first ever nation-wide farm loan waiver was announced in 1990 by Janata Party government led by then Prime Minister V.P. Singh and cost the government Rs 10,000 crore.
Thereafter, on February 29, 2008 P. Chidambaram, the then Finance Minister under United Progressive Alliance government led by Prime Minister Man Mohan Singh provided Loan waiver to farmers was by the Central Government under Agricultural Debt Waiver and Debt Relief Scheme (ADWDRS), 2008. Under the scheme, direct agricultural loans disbursed by Scheduled Commercial Banks, Local Area Banks, Cooperative Credit Institutions and Regional Rural Banks between 1st April, 1997 to 31st March, 2007 to farmers, which were overdue as on 31st December, 2007 and remained unpaid up to 29th February, 2008 were eligible for Debt Waiver / Debt Relief. While Small and Marginal Farmers were entitled to cent per cent debt waiver, Other Farmers were given a rebate of 25 per cent of eligible amount, subject to the condition that the farmer pays the balance of 75 per cent. The then Minister of State for Agriculture Harish Rawat said on Tuesday November 29, 2011 in a written reply to the Lok Sabha that more than 2.9 crore farmers have benefitted from loan waiver scheme so far, for which the government has released Rs 52,419 crore. The UPA government had waived 1.3 per cent of GDP of farm loans in 2008. After that country witnessed more than half-a-dozen loan waiver proposals from various states in the last nine years.
In 2014, Telangana waived Rs. 17,000 crore in loans to farmers and had identified to 36 lakh beneficiaries for a waiver of loans not exceeding Rs. 1 lakh to each family, while Andhra government identified 49 lakh families for a waiver of loans not exceeding Rs. 1.5 lakh per family. This scheme was aimed at benefiting farmers, who suffered in the cyclone Phailin that severely damaged crops. After Reserve Bank of India rejected a request for rescheduling of farm loans, a facility available only when drought is declared in a particular area, made by the Andhra and Telengana governments for the purpose of a loan waiver, the banks and RBI had successfully resisted attempts by the newly formed Telangana and Andhra Pradesh governments to force commercial banks to write off farm loans; both the governments had decided to repay farmers’ loans in installments. Andhra Pradesh committed to repay the banks under its debt waiver scheme Rs. 22000 crore.
Over nine years from 2008 to March 2017, the central and state governments waived Rs. 88,988 crore in loans to 4.86 crore farmers. The nationwide Rs. 52,000 crore loans waiver announced by the United Progressive Alliance (UPA) in 2008 occupies the bulk of this figure.
India now faces a cumulative loan waiver of Rs. 3.1 lakh crore ($49.1 billion), or 2.6% of the country’s Gross Domestic Product (GDP) in 2016-17; according to calculation based on detailed analysis of the data. As demands for farm-loan waivers grows across Punjab, Haryana, Tamil Nadu, Gujarat, Madhya Pradesh, and Karnataka-after Uttar Pradesh; the states announce write off as under:
- Uttar Pradesh Chief Minister Yogi Adityanath after its first cabinet meeting announced on Tuesday April 4, 2017 Farm Loan Waiver of Rs 36,359 crore that includes Rs 30,729 crore of 2.15 crore small and marginal farmers, who had taken a crop loan up to Rs 1 lakh each and an additional Rs 5,630 crore to write-off NPAs of 7 lakh farmers of the state. The state government plans to issue farmer bonds to repay the dues of banks, but there are posers on whether UP will find any taker for these bonds.
- Tamil Nadu late Chief Minister J Jayalalithaa on being sworn in, on Monday May 24, 2016 had waived the loans of 16.94 lakh marginal and small farmers who owned less than five acres of land, imposing a financial burden of Rs 5,780 crore on the state government. The Madras High Court order on Tuesday April 4, 2017 directed Tamil Nadu government to waive all farm loans and restrained officials from initiating any penal action against defaulting farmers. The order was expected to waive additional farm loans to the tune of Rs 1,980 crore and benefit an additional 300,000 farmers not covered under the loan waiver scheme ordered by the late Chief Minister J Jayalalitha. The burden on the state exchequer increased from Rs 5,780 crore to Rs 7769.33 crore. The Supreme Court, however, put a stay on Monday July 3, 2017, on the Madras High Court order.
- Punjab Chief Minister Amarinder Singh on Monday June 19, 2017 announced total waiver of entire crop loans for small and marginal farmers in Punjab. The loan waiver up to 2 lakh for small and marginal farmers with land holdings of up to 5 acres and a flat Rs. 2 lakh relief for all other marginal farmers, irrespective of their loan amount, thus pave the way for eventual total waiver of agricultural debts to implement a major poll promise of the ruling party. The move would benefit a total of 10.25 lakh farmers of the state’s 18.5 lakh farming families, including 8.75 lakh farmers having land up to 5 acres, and is likely to cost government around Rs. 10000 crore. However, in the budget presented on the next day the newly-elected Congress government has allocated Rs 1,500 crore only for the farm loan waiver. Singh said that his government had also additionally decided to take over the outstanding crop loan from institutional sources of all the families of farmers who committed suicides in the state. It has also decided to raise the ex-gratia for suicide affected families to Rs. 5 lakh from the existing Rs. 3 lakh. The waiver will cost the debt-ridden state Rs 24,000 crore, according to one estimate. He clarified that his government had not decided on whether to take a fresh loan or generate more revenue for the purpose.
- Karnataka Chief Minister Siddaramaiah on Wednesday June 21, 2017 announced that the state will waive off farm loans up to Rs. 50,000 which were taken till June 20, a move that will cost the state exchequer Rs 8,165 crore and will help 22,27,506 farmers who had obtained loans from cooperative banks. But he has put the onus on the NDA government at the Centre, to take the initiative to waive loans borrowed from Nationalised and Grameen banks. Of over Rs 52,000 crore crop loans or short term loans obtained by farmers, 80 per cent (about Rs 42,000 crore) have been obtained from Nationalised and Grameen banks and 20 per cent (Rs 10,736 crore) from cooperative banks. The last loan waiver for farmers in Karnataka was announced by the Jagadish Shivappa Shettar-led BJP government, to the tune of Rs 3,600 crore ahead of the 2013 assembly polls.
- Maharashtra Chief Minister Devendra Fadnavis on Saturday June 24, 2017 announced a 34,022 crore loan relief for farmers, saying all individual loans by farmers below Rs. 1.5 lakh will be waived. Move will benefit 89 lakh farmers. This is the biggest loan waiver in the country and the scheme will benefit 89 lakh farmers, making 40 lakh debt-free, according to Fadnavis. Maharashtra’s public debt is set to cross 4 lakh crore by the next March and will up spending more than 31,000 crores just to pay interest on its debt.
- Madhya Pradesh Chief Minister Shivraj Singh Chouhan has announced on June 8, 2017, a loan settlement scheme which it said will cover around six lakh farmers with accumulated dues of Rs 6,000 crore, to placate farmers who took to the streets and indulged in widespread violence and incidents of arson in Mandsaur demanding enhanced minimum selling price and loan waiver. The state is also contemplating a formula wherein it may waive off interest on crop loans. Chief Minister hinting that there is no scope for loan waivers in sight, stated that Madhya Pradesh is the only state in the country where farmers get interest-free loans and are charged less rate of interest on money given for buying seeds and fertilizers. MP government is extending several types of grants to farmers already and it’s the first government in the world which is extending 10% subsidy on farm loans. Chouhan added that 80 per cent of the state’s farmers took interest-free loans. Only 20 per cent of farmers were loan defaulters and efforts would be made to bring them under the interest-free loan beneficiaries’ category.
Reserve Bank of India Governor Urjit Patel, on Thursday April 6, 2017, commenting on the Farm Loan Waivers warned as under:
- Farm loan waiver undermines an honest credit culture.
- It impacts credit discipline.
- It impacts incentives for future borrowers to repay.
- Waivers engender a moral hazard.
- We need to create a consensus that such loan waiver policies are eschewed.
- Sub-sovereign fiscal challenges in this context could affect national balance sheets.
- Debt waivers also entail transfers from taxpayers to borrowers.
- On account of this overall government borrowing goes up, yields on government bonds also get impacted.
- Thereafter, it can also lead to crowding of the private borrowers as higher government borrowing can lead to increasing cost of borrowing for others.