Gehlot's Political Response To Farmers' Debt Problem

Banks may become more cautious in extending loans, as more and more farmers may take loans, relying on the assurance that a debt relief commission will back them in the event of default.

Adding another welfare measure to the many announced by the Ashok Gehlot-led Rajasthan government in recent months, the state assembly passed legislation on August 2 to establish a farmers' debt relief commission.

The five-member commission will be led by a retired high court judge.

The objective and reason for the Bill state: 'The problem of farmer indebtedness has become a serious concern in recent times. Various factors, such as famine, floods, heavy rainfall, short rainfall, hailstorms, and other natural calamities, contribute to the farmers' indebtedness, making it difficult for them to repay loans obtained from financial institutions or money lenders. Considering the pitiful condition of farmers, it is necessary to introduce legislation to provide relief to those whose primary livelihood is agriculture.'

The proposed commission will have the authority to 'issue awards after adjudication and recommend appropriate measures to redress farmers' grievances through conciliation and negotiation'.

Experts argue that this is a political response to an economic problem.

Furthermore, they are uncertain if farm foreclosures by banks due to agricultural loan defaults are as widespread as reported, leading to the inescapable conclusion that the debt relief commission is nothing more than election-eve optics.

Assembly elections in Rajasthan are due in a few months.

In March of this year, Rajasthan Planning Minister Mamta Bhupesh informed the assembly that 32 farmlands had been auctioned off in the past three years due to their inability to repay loans.

Among these cases, 31 were related to the revenue department, and one was related to a cooperative loan.

In this context, Bhupesh reiterated Chief Minister Gehlot's promise to establish a commission for debt relief for farmers, emphasising the government was 'very concerned' about the well-being of farmers.

Former Union finance secretary Subhash Chandra Garg, from the Rajasthan cadre of the Indian Administrative Service, expresses doubt that any bank has auctioned land owned by farmers for non-payment of agricultural loans in the past two decades.

"There are primarily two types of agricultural loans: crop loans, which are usually taken by farmers, and asset loans, used for purchasing machinery such as tractors, with land as collateral," Garg explains.

"Defaults might have occurred in the asset loan category, but governments have several mechanisms to address farmers' distress in case of crop failure, ranging from immediate assistance to loan waivers, where the state government pays the crop loan on behalf of the farmer. Losing land due to crop loan defaults is a rare occurrence," Garg adds.

Nevertheless, the state government has faced political pressure ever since it took office, mainly due to a manifesto promise made during the 2018 election campaign, pledging to waive farm loans within 10 days if voted to power.

Bharatiya Janata Party leader Satish Poonia comments, "As the government's tenure nears its end, neither farmers' loans have been waived nor have land auctions been banned."

This is only partly accurate.

To clarify, the Gehlot government did fulfil its promise to waive farm loans taken from cooperative banks, incurring a cost of nearly Rs 7,500 crore (Rs 75 billion) as of December 31, 2022.

However, the state government's proposal to waive farm loans from nationalised banks was 'turned down by the Centre', as stated by Bhupesh during an assembly session a few weeks ago. The formation of the farmers' debt relief commission was a response to this situation, she added.

Rajasthan becomes the third state to introduce a debt relief commission for farmers, following Kerala in 2006 and Telangana in 2019.

Former Kerala chief secretary Jose Cyriac, who was finance secretary in the state soon after the commission's establishment, remarks that the scheme only partially worked.

The primary concern is who will ultimately repay the loan.

"Setting up a debt relief commission is a good political idea, but the question is: who will bear the loan burden? In Kerala, the scheme didn't work as expected," says Cyriac.

"Initially, farmers received some relief as the state government paid back their loans. However, the debt relief commission's recommendations could not be fully implemented due to the state government running out of money," he explains.

Both Cyriac and Garg point out that loan forbearance, deferment, or rescheduling by a state government commission carries the risk of undermining the agricultural credit system's foundation.

This may make banks more cautious in extending loans, as more and more farmers may take loans, relying on the assurance that a debt relief commission will back them in the event of default.

Meanwhile, the state government is enthusiastic about its actions.

The Congress claims to have fulfilled its election promise, although this comes on the last day of possibly the final session of the Vidhan Sabha during this tenure.

Feature Presentation: Aslam Hunani/Rediff.com