Loan waiver

On 29 February 2008, P. Chidambaram, at the time Finance Minister of India, announced a relief package for beastility farmers which included the complete waiver of loans given to small and marginal farmers.[3] Called the Agricultural Debt Waiver and Debt Relief Scheme, the 600 billion rupee package included the total value of the loans to be waived for 30 million small and marginal farmers (estimated at 500 billion rupees) and a One Time Settlement scheme (OTS) for another 10 million farmers (estimated at 100 billion rupees).[4] During the financial year 2008-09 the debt waiver amount rose by 20% to 716.8 billion rupees and the overall benefit of the waiver and the OTS was extended to 43 million farmers.[5] In most of the Indian States the number of small and marginal farmers ranges from 70% to 94% of the total number of farmers.[6]

The scheme's implementation was scheduled to be completed by 30 June 2008. Guidelines were issued to every branch of every lending institution including public sector banks, scheduled commercial banks, Regional Rural Banks (RRBs) and cooperative lending institutions.[7] The top executives of these banks and institutions were also urged by the Indian Government to visit their rural and semi-urban branches to enable better and faster implementation of the scheme.[8]

The Agricultural Debt Waiver and Debt Relief Scheme was initiated by the United Progressive Alliance (UPA) government and has faced sharp criticisms from many groups including the opposition parties in the Indian Parliament, agricultural experts, and bankers. Critics said that the loan waiver was simply a populist move by the UPA Government in view of the forthcoming elections.[9] According to Parshuram Ray, director of the New Delhi-based Center for Environment and Food Security, the loan waiver was "an electoral sop that involves a lot of statistical jugglery and very little of real hope for Indian farmers."[10] An important feature of the program which has been heavily criticized is that it covers only formal sources of credit and excludes any kind of informal loan. Thus, while it benefitted wealthy and large-scale farmers who had access to institutional credit (about 23% of the total number of farmers), small and marginal farmers, who borrow the majority of their funds from private moneylenders, would not benefit from the scheme.[11] Another criticism of this scheme was that it might cripple the agricultural credit system.[12]

• In 2014, Telangana waived Rs. 17,000 crore in loans to 3.6 million beneficiaries.
• Also in 2014, Andhra government provided 4.9 million farmers families amount 24500cr 3 installments completed and last 2 installments credit with 10% interest.

In 2017, at least four states Uttar Pradesh, Maharashtra, Punjab and Karnataka, announced farmer loan waivers, with estimated cost of about US$13.6 billion. Experts project that if the loan waivers are implemented nationally, will cost about 2–2.6% of GDP (US$40–50 billion). The RBI opposes the loan waivers. The waivers hurt India's public sector banks which are already under stress. Many farmers in other states have stopped paying loans and are withdrawing deposits from banks in anticipation of waivers. In some states, the default rate has increased to 50% - 60%.[13]

In Punjab, farmers are depositing their income in other banks and avoiding the lending banks. They are expecting a loan waiver because of the upcoming 2019 General Elections.[14] In Madhya Pradesh, farm loan repayment has dipped by 10% with some farmers expecting a change in the ruling party and are expecting loan forgiveness by the opposition Congress party, if they comes to power. [15]

According to a Karnataka report, for loans taken from Cooperative banks Nationalized banks, the state is responsible for paying the interest and the principal. The loans taken from private moneylenders will be simply nullified.[16]

Urjit Patel, governor of the Reserve Bank of India has stated that "..leads to crowding-out of private borrowers as high government borrowing tends to increase the cost of borrowing for others." He said that waivers could eventually affect the national balance sheet.[17]

Studies show that big and mid-size farmers are the ones who gain the most from farm loan waivers.[18] Scholars point that the loan waivers during the one loan cycle prompt banks to reduce credit outlay for small or marginal farmers during the next loan cycle.[19]