Rahul Gandhi, President of the grand old national party keeps mentioning in his speech ad infinitum that Modi – government refuses to waive farmers loans even as it has [allegedly] waived loans worth hundreds of thousand crore given to industrialists and big businessmen. Nothing could be farther from the truth.
As regards farmers loans, in all the states where elections to the assemblies were held in recent times, BJP had promised and actually went ahead with waiver of their outstanding loans – up to specified limit though. A recent example is Uttar Pradesh where immediately on assumption of office last year, the very first decision Yogi government took was to waive farmers loans.
True, the union finance minister, Arun Jaitely had said that the center won’t foot the bill for these loan waivers; instead the concerned state should pay from its budget. But, this can’t be taken to mean [as alluded to by Rahul Gandhi] that the present dispensation does not care for farmers. The key point is that farmers’ loans have been waived. It does not matter as to who gives the money.
But, the big question is whether loan waiver is a prudent step? The answer is a categorical no. This induces a tendency among the beneficiaries not to pay back the loan even when, they can generate enough cash and hence, are in a position to pay. So, the number of farmers seeking exemption from payment will increase as and when a new loan waiver scheme is launched.
A vast majority of small and marginal farmers besides sharecroppers [cultivators who do not own land] do not have access to institutional credit viz. commercial banks, cooperative banks and regional rural banks [RRBs]. They are forced to borrow from informal sources such as money lenders at exorbitant rates. Since, the benefit of a loan waiver scheme is available only in respect of institutional credit, those banking on informal sources are normally left high and dry.
In contemporary times, loan waiver has become a regular feature. It has got inter-twined with competitive populism. If, it does not figure in the election manifesto of a party, it is not perceived to be farmer-friendly.
The loan waiver costs several thousand crore to every state government. This increases fiscal deficit and collateral damage to the economy by way of rating downgrade, increase in cost of borrowings leading to pile up of debt and build-up of inflationary pressure. Therefore, political parties should shun the practice of loan waiver as this is far from providing a permanent solution to farmers’ woes.
A sustainable solution lies in taking steps to increase their income from both farm and non-farm activities and shielding them against sudden dips. To be fair to Modi, his government is doing a lot but results on ground zero are not visible.
This is because vested interests that have taken deep roots for generations are still at work to deny farmers their dues. For instance, efforts to assure them a good/remunerative price for their agri – product are stymied by a nexus that exists between traders/intermediaries on one hand and politicians/bureaucrats on the other to obstruct implementation of much needed reforms in marketing.
The measures to reach out cheaper institutional credit to poor farmers are frustrated by a nexus between bank officials and large farmers who corner most of the pie [many of them on-lend to poor farmers earning much higher interest as against a mere 4% they pay to the institutions]. The poor farmers also have less chance of benefiting from the Pradhan Mantri Fasal Bima Yojna [PMFBY].
The irony is that these vested interests are present in all political parties including BJP. What makes matters worse is that they are needed for winning elections which are held almost throughout the year. Modi will have to think through some drastic measures to remove these bottlenecks.
There is no grain of truth in the second charge either. At the outset, it is important to note that in the past especially under UPA – II [2009-2014] led by Congress, public sector banks [PSBs] gave humongous loans to industrialists/businessmen without conducting due diligence and assessing viability of the projects. These businessmen continued to get more loans despite their poor record in servicing of previous loans [ever-greening as it is called in jargon].
The loans turned into non-performing assets [NPAs] but were swept under the carpet until such time the Reserve Bank of India [RBI] initiated asset quality review [AQR] in 2015 – under Modi – dispensation – resulting in their recognition and provision in the bank balance sheet as per norms.
The NPAs are normally written-off. This is a regular exercise conducted by banks to clean up their balance sheets. A substantial portion of the write-off is technical in nature. It is primarily aimed at cleansing the balance sheet and achieving taxation efficiency. In ‘technically written off’ accounts, loans are written off from the books without foregoing the right to recovery. Further, write-offs are carried out against accumulated provisions. Once recovered, the provisions made for those loans flow back into the profit and loss account.
It is this write-off which the Congress President is confusing with waiver. Not even a rupee of the NPAs has been waived. In fact, Team Modi is pulling out all stops to recover the loans.
Under the Insolvency and Bankruptcy Code [IBC] enacted in 2016, the government has triggered a time bound process of recovery. The lender/bank – on directions of RBI – refers the defaulter to the National Company Law Tribunal [NCLT] for initiating the resolution process. This has to be completed within 270 days [an initial 180 days plus 90 days extra time on top of that]. If, not done within the deadline, the company is put under the hammer.
If, one goes by the progress in a dozen cases involving NPAs worth Rs 200,000 crore as per a list prepared by RBI in June, 2017, the banks are expected to recover at least half of this amount. With the resolution mechanism under IBC firmly in place, the chances of fresh NPA surfacing has also been nipped in the bud.
The claims of the grand old party are ‘plain lies’ whose sole aim is to mislead public into believing that Modi runs a ‘soot-boot-ki-sarkar [a government for the rich]. The public must not get carried away; instead keep its faith in this prime minister intact.