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Mainstream, Vol XLVII, No 1, December 20, 2008

Failure of Loan Waiver to Help Most Farmers

Sunday 21 December 2008, by Bharat Dogra

COMMUNICATION

This year a lot of publicity had been given to a Rs 60000 crore loan relief scheme for farmers which was later extended to a Rs 71,000 crore scheme. This scheme did not include loans taken from private moneylenders, it was confined to loans taken from banks and related financial institutions. Still this scheme had raised a lot of hope as many farmers had significant levels of bank debt. While the scheme provided full waiver for small farmers, it also promised 25 per cent loan waiver for bigger farmers if they could return the remaining 75 per cent loan.

However, recent inquiries in Bundelkhand revealed that in most places only about 10 to 20 per cent of the farmers indebted to banks could get this relief. In Bigahna village of Mahua block (Banda district) not even one farmer has got relief. In Naraini block of Banda district, social activists said only about 10 per cent farmers indebted to banks could get relief. In some cases even farmers who had been covered by relief were asked to pay bribes to get a certificate of debt-clearance. A bank manager said that in his bank about 15 per cent of affected persons had got relief, and he added that the situation is likely to be somewhat similar no matter where you go.

The reason given for this low coverage is that even farmers who are not in a position to pay back debt somehow manage to renew their credit cards by borrowing from private moneylenders or middlemen. The middleman arranges to ‘return’ the farmer’s loan in the bank’s record, even though the money may be withdrawn again all too soon. This ensures a farmer will not be a declared a defaulter for some time and will also get meagre benefits like insurance.

The unfortunate part of the waiver was that it excluded those who had renewed their credit cards, even if this had been done as a mere formality. Hence most of the farmers were excluded from the loan waiver. Those who had not bothered to return the loan however got the unexpected benefit of this loan waiver. So apart from depriving most farmers of expected

benefits of loan relief, this scheme sent a wrong signal by rewarding the more irresponsible borrowers.

Therefore there is a very widespread feeling that in order to give the desired benefits to most indebted farmers, this scheme should be reformed, and reintroduced so that the objective of waiving the loan of all indebted small farmers can be achieved and some significant relief can also be provided to middle-level farmers.

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