Agrarian crisis: Farm loan waiver is not the solution

Delhi, IndiaWritten By: K Yatish RajawatUpdated: Dec 28, 2018, 11:01 AM IST

File photo. Photograph:(Reuters)

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Basically, the loans are not waived but transferred from the books of the farmers to the state.

It is unfortunate that the most important product in the world, food, suffers from an intransigent pricing problem. The producers never get the right price, rarely make enough profits to survive and are invariably veering between bankruptcy and debt. 

The loan waiver is just another way of throwing money at a problem, putting a petty band-aid on a festering wound. Soon, loan waivers will become a fashion that will adorn the election manifestos of all the parties. The path to winning will go through giving. Basically, the loans are not waived but transferred from the books of the farmers to the state budget. The states will have to borrow money to pay the banks who have given these loans.

Most states do not have the revenue to pay the banks, so the interest burden from the borrowings will be paid out from capital expenditure. If that happens, the work in building or improving infrastructure in cities and urban areas will take a back seat.

Many have said that the loan waiver is not a solution. Then what, pray, is the way out? The farmer needs to be seen as a small businessman and has to be treated as such by banks, the government and even business. 

There are three myths which need to be dispelled for any solution to ensure the survival of agriculture. One, armchair economists, wherever they are perched, need to understand that it’s not a price discovery problem, but realisation of price (daam kitna milta hai or how much price will the farmer get?) Hence electronic platforms do not serve any purpose as the farmer cannot sell on it. It helps only traders and speculators. 

The second myth, dismantling the Agriculture Produce Marketing Committee (APMC), sounds like a great solution as it leads to legislative action, which politicians and bureaucrats can claim as a success. It does not solve anything till such time that the farmer is not given alternative marketplace or mandi to sell. Corporate retail buying cannot be an alternate market or buyer replacing the middleman of the mandis. A Walmart or a Grofers cannot and should not replace the mandis, because a single large buyer is as much a problem as a horde of middlemen. The third myth is that a corporate buyer will be more fair than traders in a mandi.

The pricing and realisation has to be real, transparent and cannot be left to the vagaries of the brutal market forces. 

To understand the pricing conundrum for agricultural produce, the best example are vegetables. Its pricing clock starts ticking the moment vegetables are cut from the farm; every minute after that, its price declines, given that it is perishable. By the time the farmer reaches the market with it, he has only one option — to sell at whatever price he gets or dump as he cannot carry it back. 

Hence, we hear vegetable produce being sold for a pittance, as low as 50 paise a kilo. It’s a sell or dump market. The produce cannot go back and every minute that passes, the price of the perishable goes down in value at the selling mart.

Plus, there are always too many sellers at the same time in the market. As they are not organised — unlike the buyer who manages to cartelize — they have no control over prices. This is where intervention is needed to regularise this market and remove the inherent unfairness embedded in it.

The solution lies in the BJP’s election manifesto, which recommends a farmers’ market. It needs a logistical backend created by a producer company jointly owned by the farmer and the state. 

The Finance Minister has already given a 100 per cent tax exemption to producer companies. States need to create these producer companies and help farmers get their produce to the city consumers. 

Only when the logistics are owned, controlled and not geared towards profit, will price realisation truly happen. Otherwise, it is the supply chain that eats up the margins of the farmer. The economic model for this supply chain has to be created at both the district and village cluster level. 

Unfortunately, the government’s think tank is not interested in real models. Too dependent on foreign consultancy firms, which cut and paste templates from western markets.

The problem of small farmers and their inability to demand or command prices is a very Asian problem that typically afflicts very populous countries.

The way ahead lies in identifying the aspirational districts where this model can be rolled out. District Collectors across the country can look at these producer companies as job generating engines. The supply chain, once created, will benefit the ecosystem enormously. 

There is an urgent need to address the agriculture problem, as there is another drought looming ahead with winter rains being below par across most of India. The north-west monsoon has been poor and several parts of the country are already facing acute water shortage. It would make sense for the government to think of a direct income transfer for all the farmers who had opened Jan-Dhan accounts as a stop gap measure till it implements the producer company model.

The design of the solution has to take into account that the government cushions the failure and incentivises success.

The current system is designed to enslave a large section of the population in a perpetual failure model. This has to change and a new model has to be implemented.

(This article was originally published on DNA. Read the original article)

(Disclaimer: The opinions expressed above are the personal views of the author and do not reflect the views of ZMCL)