Maharashtra farm loan waiver not a long-term solution, says former agriculture secretary

Maharashtra government on Saturday announced a loan waiver of up to Rs 2 lakh for farmers. Announcing the loan waiver, chief minister Uddhav Thackeray, who came to power after his party Shiv Sena formed an alliance with the Congress and the Nationalist Congress Party, said: "Crop loans outstanding till September 30, 2019, will be waived by my government. The upper ceiling for the amount is Rs 2 lakh. The scheme will be called Mahatma Jyotirao Phule loan waiver scheme."

Siraj Hussain, former agricultural secretary, in an interview with CNBC-TV1 has said that the loan waiver was much-awaited by the farmers of Maharashtra and they are "most deserving" of the state government's move. However, he added that waiving off loans is not a long-term remedy.

“This year, the Maharashtra farmers seems to be the most deserving of loan waiver. If there was any time when loan waivers could be justified then this is the time. However, this limit of up to Rs 2 lakh—I think it will be restricted to only the small and marginal farmers. They are about 80 percent of total farmers in Maharashtra but the area operated by them is only 45 percent, which means the majority of the area operated by the farmers will not benefit from the loan waiver," Hussain said.

"Then there is this usual argument that loan waiver sets a bad precedent because then even in good times or even for crops where the harvest has been good, the prices have been good, the people who have borrowed from banks, don’t pay up. So I don’t think it is a long-term solution or a very desirable thing.”

He added: “One of the things which everybody was expecting last year before the parliamentary elections was that the government will come up with major reforms in mandis, which will free up the market so that farmers are not at the mercy of the middlemen in the markets. Unfortunately, there is absolutely no progress or very little progress on that account.

"We have seen recently in a report in Financial Express, from October to about middle of December, prices for most of the agricultural commodities produced in kharif crop have remained much below minimum support price (MSP). So the benefit which was to come by a very substantial raise in MSPs announced last year hasn’t come except in some crops."