Naveen Patnaik advocates policy framework for farm loan waivers

Odisha Chief Minister Naveen Patnaik has suggested a policy framework for farm loan waivers, an issue that has become a political hot potato in several Assembly elections in the last few years.

In a letter to Prime Minister Narendra Modi, Mr. Patnaik has made several suggestions in this regard. “In order to relieve farmers of the agrarian distress, we should have a national policy on farm loan waiver. The State government would be willing to support any initiative taken by the Central government in this direction,” said the letter.

Sources in Mr. Patnaik’s government have said that the suggestion seeks to address the rather discretionary and ad hoc nature of loan waiver announcements being made by political parties in election campaigns without any promises of back-up from the Centre on sharing of costs, and then trying to arrange funding.

“The Centre and the States should agree not on cost sharing, whether 60% should be from the Centre and 40% from the State, but the whole issue should be removed from political considerations, since agrarian distress and addressing is beyond partisanship,” said a source in the Patnaik government.

Recently the issue of farm loan waiver had loomed large in the Karnataka Assembly polls, and Chief Minister H.D. Kumaraswamy is still struggling to put together a suitable package, and hoping that the Centre may chip in with some help.

The larger question of access to institutional credit has also been addressed in Mr. Patnaik’s letter, where he suggests the setting up of a Credit Guarantee Trust for Agriculture (CGTA) on the lines of the Credit Guarantee Trust for Small and Medium Enterprises (CGTSME). “Through this, collateral-free agricultural loans of up to ₹50 lakh and collateral-free crop loans of up to ₹2 lakh is offered, backed only by the guarantee of CGTA,” he wrote.

This would, say sources, address the problem of access to institutional credit faced by sharecroppers. Since they are not owners of the land they till and since banks are reluctant to offer them credit, sharecroppers have to turn to private moneylenders. Sources added that the Odisha government is creating a CGTA for the State’s farmers with a corpus of nearly ₹200 crore.

The issue of farm loan waiver has many implications for the fiscal health of State governments but is very attractive in political campaigns. After the mega loan waiver announced by the then UPA government just before the 2009 polls, the BJP too bit the bullet in the 2017 Assembly polls in Uttar Pradesh. While the BJP has been clear that even party-ruled States will be on their own on any waivers promised, agrarian crisis being what it is, it may just be time to come up with a policy to end politicking in the matter.