LOAN WAIVERS: NOT A PANACEA FOR FARM DISTRESS
GS 3, MAINS: Indian Economy and issues relating to planning, mobilization of resources, growth,
development and employment
IMPACT OF FARM LOAN WAIVER:
• Reliance on non-institutional or informal sources: By its very definition, loan waivers will
help those farmers who have taken loans and that too from institutional sources like
commercial banks. Small and marginal farmers usually rely on non-institutional sources of
finance like moneylenders, family members etc.
• Moral Hazard: Loan waivers will incentivise farmers not to pay in anticipation of future
waivers. Data reveals that the waiver causes an increase in loan defaults, especially in the
electoral cycle after the scheme, in the hope of a waiver. It destroys credit culture.
• Discourage lending by banks: For Banks, the farmers whose loans have been waived is a
defaulter. This discourages lending to the beneficiaries of the waiver scheme (in this case,
• Impact state finances: Huge packages for waivers impact the state budget. It also reduces
fiscal space of the Government to undertake capital expenditure in agriculture and other
• No improvement in farm productivity: Farm loan waiver does not lead to any benefits to the
farmers in terms of productivity. Studies find that there is no improvement in farm
productivity for households qualifying for loan waiver. This indicates a failure of the
programme to achieve its desired goals.
ALTERNATIVES TO FARM LOAN WAIVERS:
• A test of robustness of farming ecosystem could be the capital investment in farming. There
is complete lack of concentration on developing farming infrastructure such as irrigation
network, innovation in seed quality, irrigation technology, use of non-conventional energy,
improvement in pest control methods, protection against global warming, and farmers’
• A farmer’s income has to be made stable and secure. for this, the minimum support price
(MSP) has to be set at such a price that covers all their production cost and includes profit
for the farmers. Various ways need to be devised to minimise farm production cost and
• Indian agriculture is highly dependent on the monsoon and if in a particular year there is no
rainfall, farmers face losses. to avoid this, the money that the government uses in waiving
off loans can be used for investment in better forms of irrigation which will help the farmers
in the long run.
• To protect the farmers further, there should be better insurance policies and roll out of
warehouses to store surplus crops instead of selling it right away and reducing the prices of
• One of the major problems faced by farmers is the existence of middlemen. By eliminating
the middlemen, there will be a free flow of market forces which will determine prices based
on demand and supply of a particular crop.
• There is also a need for increasing productivity in perpetuity without causing any ecological
harm. The concept of evergreen revolution coined by m.s. swaminathan focuses on the
same. It includes integrated pest management, integrated nutrient supply, and scientific
• More emphasis should also be done on organic farming. Indian states should follow the
example of sikkim which has become the first state to be declared the organic state of india.
Organic cultivation doesn’t involve the use of chemical pesticides and fertilizers and also
improves the quality of the soil which consequently improves the standards of the crops
Structural reforms in Indian agriculture will go a long way in improving the farmers’ condition,
quelling the vicious cycle of indebtedness and making agriculture sustainable. Although at present,
there is no alternative of loan waivers to abate farmers’ woes, an amalgamation of loan waiver
scheme and structural reforms is what is required.
PREVIOUS YEARS UPSC MAINS QUESTIONS:
- How far is the Integrated Farming System (IFS) helpful in sustaining agricultural production. (2019)
- Elaborate on the impact of the National Watershed Project in increasing agricultural production from water-stressed areas. (2019)
- How has India benefited from the contributions of Sir M. Visvesvaraya and Dr. M. S. Swaminathan in the fields of water engineering and agricultural science respectively? (2018)
- What are the reformative steps taken by the Government to make the food grain distribution system more effective? (2018)
- What do you mean by the Minimum Support Price (MSP)? How will MSP rescue the farmers from the low-income trap? (2018)
- Examine the role of supermarkets in supply chain management of fruits, vegetables, and food items. How do they eliminate the number of intermediaries? (2018)