Farm Loan Waiver | 04-01-2020

Why in News?

Maharashtra government announced a loan waiver for farmers who had up to Rs 2 lakh in pending loans between April 1, 2015 and March 31, 2019.

Why this waiver is in spotlight?

  • Maharashtra by doing so has became the only state to have offered two consecutive farm loan waivers within two-and-a-half years of each other.
  • The previous loan waiver was announced by the Devendra Fadnavis government in June 2017.
  • A look at why this loan waiver was considered necessary and how it is different from the earlier one is important.

Why banks give loans?

  • At the start of the cropping cycle, banks extend short term credits to farmers to finance their need of capital for purchase of seeds, etc. Financial institutions usually provide this loan at 7% interest.
  • Timely repayments allows farmers to get a 3% interest subvention from the central government and a further 2% subvention from the state government, thus effectively reducing the interest rate to just 1%.
  • This is envisioned to help the farmers access credit at the right time and keep them away from the clutches of money lenders who lend at exorbitant rates.

Why defaults occur?

  • A spate of extreme weather events, like droughts, floods, hailstorms etc, often results in farmers defaulting on their repayment.
  • As of September 30, 2019 the outstanding crop loan in Maharashtra was more than Rs 1 lakh crore.
  • Defaulting farmers become ineligible for new capital from the banks and are forced to knock at the door of private money lenders.
  • To help the farm sector, state governments have time and again announced loan waiver schemes.
  • Back in 2008-09, the then government at the Centre had announced a loan waiver scheme for the entire country.
  • States like Madhya Pradesh, Chhattisgarh and others have announced similar schemes in the recent past.

What is the 2017 waiver?

  • Faced with an unprecedented farmers’ strike, the Fadnavis-led government had announced a loan waiver scheme in June 2017.
  • Irrespective of the size of landholding, the scheme waived off outstanding crop loans up to Rs 1.5 lakh per family.
  • Farmers who made regular repayments got Rs 25,000 as incentive for good credit behaviour.
  • The scheme waived off loans pending from April 1, 2012 to March 30, 2016 and later, it was extended to include outstanding loans from 2001.
  • Farmers whose outstanding was more than Rs 1.5 lakh were expected to deposit the additional amount to get the waiver.
  • Calling for a complete loan waiver, the Opposition described the Fadnavis government’s scheme as a cruel joke on farmers.

What is the new scheme?

  • The new Maharashtra coalition government announced the Mahatma Jyotirao Phule Shetkari Karja Mukti Yojana.
  • State government sources said this scheme would see Rs 26,000 crore of outstanding loans of over 36 lakh accounts being waived off.
  • This scheme will see outstanding crop loan up to Rs 2 lakh, pending from April 1, 2015 to March 31, 2019, being waived off.

What is the difference between the two waivers?

  • In the latest scheme, farmers with more than Rs 2 lakh outstanding are not eligible for the scheme.
  • Also, the scheme has no incentive for farmers who are regular in their repayments.
  • Farmers’ activists have criticised these two provisions which they say defeats the purpose of loan waiver.
  • There are talks for extending the scheme later to cover farmers with more than Rs 2 lakh outstanding as well as for farmers who are regular with repayments.
  • A new provision in the present scheme is that families with more than one loan account are eligible for waiver in each one of their accounts.
  • The last waiver was limited to one account per family.
  • Also, this time farmers will not have to file online forms to avail their waivers. It had led to major confusion last time.


Source: Indian Express

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