Actions in times of waivers

The feasible path out of the agrarian vicious circle has to be gradual, not a mercurial leap

The last debt waiver in 2008 amounted to Rs 70,000 crore. With mounting distress, a similar nationwide write-off will amount to several lakh crore rupees, in the neighbourhood of the net non-performing assets of public sector banks. That situation rightly causes severe concern to the Reserve Bank of India and its governor. The stressed peasantry debt burden of a like order of magnitude needs to be “owned” by a similar agency. Ownership in this instance means a vigilant oversight of required actions and pursuit of correctives. The premier agriculture finance body, the National Bank of Agriculture and Rural Development (Nabard), is the logical candidate.

Village India will continue to suffer stress for some considerable time. The relevant objective should be to reduce its intensity to the greatest possible extent when it manifests due to specific causes and to institute a system that anticipates stress situations and triggers mechanisms to mitigate it. Towards this end, several actions recommend themselves.

Adequate agro-climatic information and advance warning: This is the responsibility of India Meteorological Department (IMD).  What is needed is not just a season-long forecast for the country as a whole, but, far more importantly, forecasts disaggregated in time and space, that is, for the next two weeks and for a district or two at most. IMD has begun taking baby steps in this direction. That needs to become its key task and in a hurry.

Continuous real-time monitoring and contingency planning: All 36 sub-divisions of the country require weekly monitoring of agro-climatic conditions to identify possible abnormalities before they emerge as full-blown calamities. The lead responsibility should be with Nabard, which should keep ready at all times region-specific contingency plans and coordinate these with other government and private agencies.

Rational water use priorities and pricing policies: Central, state and local government bodies should put in place for each region sliding scales of water pricing depending on priority of use and extent of cut-offs in case of water shortages. Low priority users should be encouraged to explore alternatives such as desalination and allowed to use water as required if they provide compensatory quantities through their own efforts elsewhere within the water grid, along the lines of power wheeling.

Basin management and intra-/inter-basin transfers: Water must be treated as a national resource of the greatest possible importance and its judicious distribution across regions and times must be facilitated even if this proves to be a long-term, resource-intensive and politically fraught exercise. Examples such as intra-state transfers in Gujarat and Andhra Pradesh need to be replicated where possible, even if the cost is high.

Farmer-friendly marketing systems: Even in the absence of any natural or man-made calamity, the importance of an equitable and transparent market mechanism cannot be gainsaid. The government has begun with the e-National Agricultural Market programme, but bottlenecks most likely exist at local levels.  These could well counter all the gains that would be otherwise possible. This vitally important concern of all times merits a full systems study.  

Relief measures: All possible precautions notwithstanding, dire situations at times would call for relief beyond mere alternate plans. Such measures would include relief works under the Mahatma Gandhi National Rural Employment Guarantee Scheme, insurance coverage and other packages.

The utility and effectiveness of farm insurance is yet to be established. The new scheme needs to be carefully monitored. At best, however, crop insurance will compensate for the expenses. If income loss is also to be compensated, the cost could be quite high.

Muhammad bin Tughlaq instituted taccavi loans in the 14th century to provide relief to farmers at low or no interest. They worked well within specific areas under conditions of unforeseen eventualities.  These are now discontinued, but merit revival. Governments and banks reschedule outstanding loans, convert crop loans to term loans and reduce or waive interest on such loans as relief measures when facing droughts or disasters. They stop short of loan waivers and are temporary, bridging approaches. These must continue with a set of objective guidelines.

Loan waivers should be the remedy of the last resort, when all else fails, in keeping with their palliative nature. Even so, they should be administered with extreme care, with safeguards built in so as to avoid or at least minimise their well-documented negative consequences.

The agrarian vicious circle breeds despondency and resignation. The desired and feasible path out of it is gradual, and not a mercurial leap with a Big Bang. The decision horizon needs to move from next month (survival) to next year (guarded optimism) to next generation (aspiration).  

(The series is concluded)

The author is an economist and founder-director of Institute of Rural Management, Anand