Reserve Bank of India (RBI) governor Urjit Patel questioned the waiver of farm loans and urged the Centre and state governments to move to a more fundamental solutions. Speaking at a seminar to debate farm loan waivers organized by the RBI, Patel said that elements of an optimal approach to address farm problems are well known. These include crop insurance, infrastructure, irrigation, technology-enabled productivity improvements, and, opening up the farm economy to market forces and open trade. The governor questioned whether credit was being used as an alternative for other policy interventions.
Patel said that while waivers helped clear the debt of farm households, several negative side effects have also been cited by experts. The negatives include faulty targeting of beneficiaries and resulting discrimination, incentivising wilful defaulters, and erosion of credit discipline.
“India's agrarian economy is the source of around 15% of GDP, 11% of our exports and provides livelihood to about half of India's population,” said Patel. Outstanding bank advances to agriculture and allied activities have risen from about 13% of gross domestic product originating in agriculture in 2000-01 to around 53% in 2016-17.
In addition to increasing flow of credit to agriculture, the government has been providing budget subsidies to farmers through an interest subvention scheme. According to him, an RBI panel in 2014 had recommended revisiting the need for subvention of interest rates for lending to agriculture.“The experience of catalysing bank credit flows to agriculture and expanding the panoply of subventions begs the question: Are we substituting credit for other policy interventions?” Patel said.
