Study Material | Test Series
Drishti IAS
call1800-121-6260 / 011-47532596
Drishti The Vision Foundation
(A unit of VDK Eduventures Pvt. Ltd.)
mains Test Series 2018
Q. UP farm loan waivers: Comment on recent move of farm loan waiver by Uttar Pradesh government.
Apr 06, 2017 Related to : GS Paper-3

Ans :

Introduction-

Recently the new government of Uttar Pradesh in its first cabinet meeting approved a write-off on outstanding farmer loans of up to Rs. 1 lakh taken before March 31, 2016. The government also decided to waive loans worth ₹6,000 crore extended to small and marginal farmers that had turned into non-performing assets. 

Impact-

  • Both packages announced by the Uttar Pradesh government will cost the about Rs. 36,000 crore to the state exchequer.
  • This move not only triggers countrywide clamour for similar debt relief packages, but also political parties would be more inclined to make such grand promises ahead of future polls.

Analysis-

  • In the year 2016-17, the UP has invested just 2.3% of total expenditure in 2016-17 to revamp farm sector, which one of the lowest rates across major States.
  • Forgiving loan burdens is a powerful political gesture that glosses over the fact that governments have had little patience to make agriculture a sustainable economic activity.
  • FDI of up to 100% was allowed in food retail trading but investments are stuck over the reluctance to allow a small proportion of non-food sales. 
  • Writing off loans as a blanket policy, without scrutiny and restructuring attempts creates a moral hazard for borrowers, who will have no incentive to stick to credit discipline. 
  • Similarly, frequent write-offs will affect banks to invest in alternatives such as the Rural Infrastructure Development Fund instead of reaching out to individual farmers to meet their agricultural lending targets. 
  • Waiving of loans become common tool for political parties in poll times and it is draining state exchequer without any visible farm sector improvement, which is a dangerous trend.  

Conclusion-

The recent farm waiver by Uttar Pradesh though intended to reduce farm distress, but is not a long term solution to address the agricultural problems. The loan waiver has become political tool and politicians are increasingly utilising it without any rational thought. Hence governments instead of loan waiver must invest heavily to revamp the farm sector.


Helpline Number : 87501 87501
To Subscribe Newsletter and Get Updates.