Loan Wavier Schemes
- G.S. Paper 2
- Drawbacks of Loan Wavier Schemes
- Measurements to solve the issue
What are the drawbacks with loan waiver schemes?
- Out of the indebted agricultural households, about 40% borrowed only from non-institutional sources.
- It provides only a partial relief to the indebted farmers as about half of the institutional borrowing of a cultivator is for non-farm purposes.
- All such households are outside the purview of loan waiver.
- Loan waiving excludes agricultural labourers who are even weaker than cultivators in bearing the consequences of economic distress.
- In many cases, one household has multiple loans either from different sources or in the name of different family members, which entitles it to multiple loan waiving.
- The scheme is prone to serious exclusion and inclusion errors.
- It severely erodes the credit culture, with dire long-run consequences to the banking business.
Measurements to solve the issue
- The sustainable solution to indebtedness is to raise income from agricultural activities and enhance access to non-farm sources of income.
- Implementing long-pending reforms in the agriculture sector with urgency is required.
- Regulation on remunerative prices for farm produce is to be done.
- Identifying vulnerable farmers based on some criteria and giving them financial relief is needed.
- Strengthening the repayment capacity of farmers by improving and stabilising their income is required.
- Improved technology, expansion of irrigation coverage, and crop diversification towards high-value crops are appropriate measures for raising productivity and farmers’ income.