Only 50% of farmers benefited from loan waivers, says study

GS 2,3; Human Resources, Govt Policies and Interventions, Employment, Growth and Development, Issues Related to Direct and Indirect Farm Subsidies.


According to a study conducted by analysts at the State Bank of India, just around half of the intended recipients of farm loan waivers declared by nine states since 2014 have gotten debt write-offs.

What Exactly Is a Farm Loan Waiver?

  • Farm loans are either crop loans or investment loans obtained from banks to purchase agricultural supplies or equipment.
  • If the monsoon fails or a natural disaster strike, farmers may be unable to repay their loans.
  • As a result, the federal or state governments assume farmer obligation and reimburse the banks.
  • Waivers are typically selective, which means that only certain loan kinds, farmer groups, or loan providers may qualify.
  •  In 2008, for example, crop and investment loans were totally forgiven for marginal and small farmers (those with less than 2 hectares of land ownership), whereas other farmers only received a 25% decrease.

Analysis of the Recent Survey:

  • The SBI analysis was based on the results of ten agricultural loan write-offs of over 2.53 lakh crore declared by nine states, beginning with Andhra Pradesh and Telangana in 2014.
  • Since 2014, just over half of the approximately 3.7 crore eligible farmers have received the loan waiver money through March 2022.
  • Despite much hype and political support, farm loan waivers by states have failed to provide relief to intended subjects, sabotaging credit discipline in specific geographies and making banks and financial institutions wary of further lending,” the SBI report stated, calling it a “self-goal” inflicted by the state on its subjects.

Possible Explanations Include:

  • The analysis cited State governments’ rejection of farmers’ claims, restricted or low fiscal flexibility to satisfy pledges, and government change in later years as probable explanations for the poor implementation rate of these loan waivers.
  • Aside from issues about subsidies not reaching the intended farmers, the report raised questions about whether they genuinely assist farmers in genuine need.
  • The proportion of standard accounts that were covered by the farm loan waiver was notably high in Jharkhand (100 percent), Uttar Pradesh (96 percent), Andhra Pradesh (95 percent), Punjab (86 percent), and Telangana (86 percent) (84 percent).

Farm Loan Waivers in India:

  • The earliest known instance of giving loans to peasants in mediaeval India goes back to the rule of Muhammad-bin-Tughluq (1325-51) in order to alleviate villagers’ hardship.
  • Since independence, India has only had two countrywide loan forgiveness programmes: in 1990 and 2008.
  • In 1990, the V.P Singh administration launched the first state-wide agricultural loan waiver.
  • Since then, several state governments have waived such initiatives, which were initially meant as a one-time device. Over the last two decades, such schemes have been introduced with increasing regularity, signalling the chronic distress of India’s agricultural sector.

Legacy Concerns:

  • Following bank nationalisation in 1969 and 1981, banks undertook different welfare initiatives vigorously promoted by the central government.
  • Whenever governments desire to partially or completely forgive debtors’ dues, a check for the amount was required.
  • The RBI has often stated that banks are commercial enterprises that act as intermediaries between depositors and borrowers and are supposed to operate on viable business reasons.
  • The basic goal of banking regulation, which is the Banking Regulation Act of 1949, is to protect depositors’ interests. The RBI must guarantee that banks operate in a safe manner so that depositors’ money is available when they need it.

Favourable Arguments:

  • Social Safety Net: the impoverished class of farmers require protection from debt payment when the monsoon fails and the subsequent drought drives them to poverty and, in some cases, suicide.
  • Increasing frequency of floods and Droughts: agricultural loan waivers reflect changing meteorological circumstances, as droughts have grown more regular and localised, hurting specific areas.
  • Other Factors: Agriculture in India has been plagued by a number of difficulties, including fragmented land holdings, falling water tables, poor soil quality, rising input costs, low productivity, and so on.
  • Output prices may be uncompetitive, forcing farmers to borrow to cover expenditures.


  • Moral Hazard: Some critics, including previous RBI governors, believe that the programme creates a moral hazard by incentivizing farmers not to service their loans while punishing those who do.
  • Fiscal And Logistical Challenges: for planned execution, a large fiscal space must be provided, especially after the pandemic, when the government already bears a large fiscal load.
  • Finally, the bank bears a cost in terms of both direct interest revenue and the opportunity cost of deploying money.
  • Identification of beneficiaries: It is commonly seen that benefits do not reach the small and marginal farmers who require them.
  • The government’s loan waiver programme does not include private money lenders, the majority of small and marginal farmers do not qualify for any aid.
  • Political manoeuvring: In general, the timing of loan waiver announcements during election cycles demonstrates the political expediency of such waiver schemes, which do not solve long-term concerns in agriculture.
  • According to statistics supplied by NABARD and states to the central government, state administrations do not typically press for PD executions after making popular lawn where announcements, and farmers do not receive prompt help.
  • The lack of improvement in agricultural production for households eligible for loan exemptions demonstrates the programmes’ inability to accomplish their intended aims.
  • Loan waivers can also have a detrimental influence on credit flow because they produce credit market distortions by encouraging farmers to default. It also raises banks’ NPAs (Non-Performing Assets).
  • Loan waivers not only raise the government’s budget deficit and interest load, but also limit its capacity to invest in productive capital in agriculture, affecting the sector’s long-term growth.

What Efforts Has the Government Done to Help Farmers Lower Their Debt Burden?

The following notable steps have been implemented to reduce farmers’ debt burden:

  • Interest Subvention Plan:
  • In order to enable farmers’ access to agricultural finance at a lower interest rate of 7% p.a., the Government of India’s Department of Agriculture Cooperation and Farmers’ Welfare (DAC&FW) administered an Interest Subvention Scheme for short-term crop loans of up to Rs. 3.00 lakh.
  • The Scheme gives a 2% annual interest subsidy to banks for the utilisation of their own resources.
  • In addition, farmers receive an extra 3% incentive for timely repayment of the loan, lowering the effective rate of interest to 4%.
  • The Reserve Bank of India (RBI) has issued instructions for respective lending institutions to provide Relief Measures in areas affected by natural calamities, which include, among other things, restructuring/rescheduling of existing crop loans and term loans, extending new loans, relaxed security and margin norms, moratorium, and so on.
  • In order to increase the participation of small and marginal farmers in the formal credit system, the RBI has decided to increase the collateral-free agriculture loan ceiling from Rs. 1 lakh to Rs. 1.6 lakh.
  • The necessity of a ‘no due’ certificate has also been waived for minor loans of up to Rs.50,000/- to small and marginal farmers, sharecroppers, and the like, with just a self-declaration from the borrower being required.
  • Banks have encouraged Joint Liability Groups (JLGs) to bring small, marginal, tenant farmers, oral lessees, and others into the fold of institutional lending.
  • The Pradhan Mantri Kisan Samman Nidhi (PM-KISAN) Scheme was launched to give guaranteed income assistance to all farmers, regardless of landholding size, subject to an exclusion factor. Direct income assistance of Rs. 6,000 per year would be deposited directly into the bank accounts of beneficiary farmers under this plan, in three equal payments of Rs.2,000 each.
  • The Pradhan Mantri Fasal Bima Yojana (PMFBY) provides a comprehensive insurance cover on the failure of insured crops due to unpreventable natural risks, thereby providing financial support to farmers suffering crop loss/damage as a result of unforeseen events; sustaining farmers’ income to ensure their continued farming; and encouraging farmers to adopt innovative and modern agricultural practises.
  • The Government in DAC&FW is implementing many Central Sector/Centrally Sponsored Schemes for the growth of agriculture and the welfare of farmers in the country, which include:
  • RKVY (Rashtriya Krishi Vikas Yojana) (RKVY)
  • Mission for National Food Security (NFSM)
  • Agriculture National Market (e-NAM)
  • National Sustainable Agriculture Mission (NMSA)


  • Loan forgiveness is not a long-term solution for farmers unless the basic issues are addressed. Though it provides immediate debt relief and prevents suicides, it has frequently failed to contribute to farmers’ long-term welfare.
  • Furthermore, the extent to which this relief measure may assist farmers in getting out of debt and suffering is always an issue. Because loan waivers in India are plagued by a lack of accountability and competent monitoring, their efficacy is diminished.
  • This, along with the reality that not all debt is formal, further weakens their efficacy. Because agriculture employs the majority of India’s working population, debt forgiveness is unavoidable.
  • However, only a solid system of accountability and transparency of waiver would enable the efficient operation of the waiver plan.
  • Loan waivers destroy the credit culture which may harm the farmers’ interest in the medium to long term and also squeeze the fiscal space of governments to increase productive investment in agriculture infrastructure,” the SBI report said.
  • Farm loan exemptions were created as a response to severe agricultural hardship and to secure the continuation of future lending, but they have grown into a political instrument that political parties intentionally exploit to influence rural voters.
  • The farm economy will suffer as long as farmers are not empowered to make their produce profitable. Instead of forgiving loans, the government has to be a “technology enabler.”
  • Because of the long-term hardship in the agrarian sector and its pervasiveness, the remedy must be long-term and multi-pronged.


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