$15bn loan waiver reaps harvest of anger

Posted in India | 13-Mar-08 | Author: Raja M| Source: Asia Times

A farmer ploughs a field in Naxalbari village, about 32 km (20 miles) south from the northeastern Indian city of Siliguri March 6, 2008.

MUMBAI - The Indian government's US$15 billion waiver of farmer bank loans in its budget this month has raised a ruckus among captains of industry, politicians and non-farmers concerned that the huge write-off will not benefit the poorest of farmers, will fail to address root causes of rural poverty and will damage the economy.

Opposition parties in Parliament, terming the waiver as a pre-election sop, condemned its "fudgy mathematics" and called Finance Minister Paliniappan Chidambaram a "magician" for offering the loan waiver without specific budgetary provisions.

A cover story run by leading newsweekly India Today, titled "Sop Opera", wondered whether government efforts to woo the poor it has previously largely neglected were not too late to save the Congress party and its allies from a rout in general elections due next year.

The loan waiver is "an electoral sop that involves a lot of statistical jugglery and very little of real hope for Indian farmers," said Parshuram Ray, director of the New Delhi-based Center for Environment and Food Security, an organization involving some of India's leading environmentalists, scientists, writers and scholars such as Ashis Nandy, Kamla Chowdhry and Pradipto Roy. "It is unlikely to address any of the fundamental problems facing poor farmers. True to India's electoral politics, this scheme has very little of substance and most of it is just symbolism designed to woo the poor and gullible voters."

The budget's loan waiver has uncomfortable precedents for ruling politicians. In 1989, then prime minister Vishwanath Pratap Singh sanctioned a $3 billion bank loan waiver scheme but failed to keep his job.

Present Prime Minister Manmohan Singh argues that his United Progressive Alliance government is merely footing the bill for agricultural distress that arose when the present opposition parties were in power.

Rural India has a decisive say in elections, and politicians ignore that constituency at their peril, as the National Democratic Alliance found out when it was booted out of power in 2004. Agriculture accounts for the livelihood of 52% of the country's workforce and contributes 18.5% of the gross domestic product (GDP).

The economy's 8.7% GDP growth rate, among the world's fastest, looks impressive, but until problems in the agriculture sector are tackled it will be fragile. In particular, the incomes of small farmers are not keeping pace with rising production costs in a country where the government fixes many farm-produce purchase prices. The Finance Ministry estimates agriculture growth for 2007-08 at a miserable 2.6%.

The government, accused of doing little for farmers until this last pre-general election budget, expects 30 million farmers to benefit from the loan waiver, which is expected to be implemented by June. But critics claim it ignores those most in need, replicating the faults of the $4.5 billion National Rural Employment Guarantee project announced in 2006 to combat rural poverty.

Only 20 million of the country's 110 million farmers are estimated to have bank loans, against the majority who are indebted to usurious private money lenders, something for which Chidambaram and Agriculture Minister Sharad Pawar have no answers. Moneylenders are estimated to account for over 70% of loans to small farmers, at crippling interests averaging 30%.

Perhaps the most telling indictment of the loan waiver scheme came from Nitish Kumar, chief minister of Bihar, one of India's most troubled and poverty-stricken states, who said the waiver did very little for farmers in his state as most of them had no access to bank loans.

Nor does the waiver address key problems such as the purchase price of agriculture products lagging the increase in production costs, which are estimated to have ballooned to an average of $333 per acre (0.4047 of a hectare)in 2008 from $51 in 1991.

Leaders of farming communities are not impressed with the government's "hand-out". "The loan waiver is not a permanent solution to problems troubling Indian farmers," Dinesh Kulkarni, of the New Delhi-based Bharatiya Kisan Sangh (Indian Farmers' Association), told Asia Times Online. Gaps in the scheme mean it "will not help the larger number of distressed farmers".

Kulkarni, who says his association represents 800,000 farmers across the country, believes that the government needs to address more basic problems such as farmers getting better prices for their produce.

"For instance, the production cost of one tonne of sugarcane in Maharashtra state is 1,600 rupees [US$39.60], but the government-fixed purchase price is barely half this cost," says Kulkarni. "Unless purchase prices give farmers at least a 20% profit, they will continue to suffer."

Critics also doubt whether the bank loan waiver scheme will help reduce the appalling number of farmers who commit suicide under the burden of their debt; over the past decade more than 150,000 have killed themselves. A chilling report in one of India's most credible national dailies, The Hindu, estimates farmers are taking their own lives at a rate on average of one every 30 minutes.

Reports continued of farmers killing themselves even after the loan waiver scheme was announced, confirming fears that the worst-affected farmers are under the merciless grip of private money lenders and out of reach of the limited rescue act of the loan waiver.

Palagummi Sainath, a leading writer on rural affairs and winner last year of the prestigious Ramon Magsaysay award for journalism, says the loan waiver scheme has been designed to benefit richer farmers and political vested interests. Sainath told a New Delhi audience attending his lecture, "Death on the Farm: The Agrarian Crisis and its Consequences", that 52% of farmers in Maharashtra's Vidarbha region, the epicenter of the suicide epidemic, are ineligible for loan waivers as they own more, but unproductive, land than the cut-off maximum of five acres.

Sainath estimates that the monthly per capita expenditure for a farm household is $12. "Around 55% is estimated to be spent on food. What will they have to spend on education or health?" he demanded.

The $4.5 billion National Rural Employment Guarantee project announced in 2006 to offer 100 days of employment annually to the rural population was sharply criticized this year by governmental auditors as being inefficient and corrupt in its implementation to date. Combined with the loan-waiver, that accounts for a staggering $20 billion in taxpayers' money to fund temporary relief in a largely poverty-stricken, under-nourished country without addressing fundamental causes behind the poverty.

Finance Minister Chidambaram says that while investment in India is continuing on a roll, the farm sector was pulling down the economy with agriculture growth stagnant in the past few years. The loan waiver was necessary to boost agriculture production and to control inflation, he said.

"One of the reasons why inflation is still a threat is the food price in India," he said during a post-budget meeting with the Associated Chambers of Commerce and Industry of India in New Delhi on March 6. He said India had become a marginal importer of foodgrains, which he termed a dangerous omen. "No country with as large a population as India can be dependent on imports [of foodgrains]," he said. He also pointed out that industry in the country had collectively enjoyed loan write-offs of more than $15 billion.

Even so, the finance minister did not explain why his government has failed to act on long-term measures to tackle farmer woes and increase food production, such as implementing the recommendations of the government-appointed Expert Group on Agricultural Indebtedness and the M S Swaminathan Committee on National Farm Policy. The respected Chennai-based agriculture scientist Swaminathan, called the Father of India's Green Revolution, has welcomed the loan waiver but warned that far more needs to be done to address rural poverty.

Parshuram Ray, of the Center for Environment and Food Security, recommends three steps for the government to address India's fundamental problems in agriculture. "The first and foremost thing is to take the initiative to withdraw agriculture from the World Trade Organization so that it is free to formulate, implement, control and regulate farm policies which are pro-farmer and not pro-market."

Ray said Indian agriculture also "desperately" needs big investment in farm infrastructure and promotion of "ecologically sustainable, economically viable and socially equitable cropping patterns".

Dinesh Kulkarni of the Bharitya Kisan Sangh points out that Agriculture Minister Pawar had announced a loan waiver scheme in 1978 when he was chief minister of Maharashtra state. "If periodic loan waiver schemes are being announced, it means that basic problems in Indian agriculture have not been addressed for so long," he says.

Unless the government backs up the $15 billion loan waiver with measures to increase rural prosperity and help farmers from falling into another debt trap, rural leaders say chances of farmer suicides ending are dim - and so too are the chances of Manmohan Singh's government surviving to present another federal budget.