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Day 29 – Q 3. Loan waivers for the farms isn’t a good strategy to address the rural distress. Comment.

3. Loan waivers for the farms isn’t a good strategy to address the rural distress. Comment.   

खेतों के लिए ऋण छूट ग्रामीण संकट को दूर करने की एक अच्छी रणनीति नहीं है। टिप्पणी करें।


Monsoon dependent Indian agriculture is showing signs of distress reflected in events like increasing number of farmer protests, suicide of farmers, unable to secure enough price and resulting roadside dumping of farm produce.


Waiving the loans of farmer due to erratic monsoon, bad harvest, and pests spread etc. has often being used as a tool to minimize farmer’s distress. Farm loan waivers are provided to farmers as

  • It sheds farmer’s burden, given increasing incidence of farmer suicides waiver is justified.
  • It increases investment in the agriculture by encouraging farmers to take loans.
  • Increased rural demand in turn will give fillip to other sectors of the economy.

It is being criticized as not a good strategy due to following reasons: –

  • It leads to moral hazard to those who are able to pay loan to the farmer.
  • It affects credit culture of the economy as said by RBI governor.
  • It is used as political tool to gain election benefits keeping banks at stake. PSU banks is going through difficult phase with NPA problem and at this juncture loan waiver cannot be afforded.
  • Loss to government exchequer, waived amount is ultimately paid from exchequer at the cost of other developmental needs.
  • Domino effect: With states taking the lead from one another.
  • It may affect foreign investments as waivers are seen as bad financial practice worldwide.
  • Ineffective in reaching farmers: Majority small farmers still take loan from local moneylenders; hence they remain untouched with the loan waiver policy, despite being the most affected ones.
  • Vicious Cycle: The economic stress of loan waiver leads to reduced spending by government in the pre-production phase of agriculture, irrigation facilites and better climate planning for crops which leads in a vicious cycle of poor crop and loan waiver.
  • Non coverage of non-farm losses: It provides a partial relief as majority of institutional borrowing by farmer is for non-farm purpose.

Instead of loan waiver which is short term remedy, Government should focus on making farming remunerative and sustainable in the long run.  

  • Spend the money in improving infrastructure in agriculture which could be beneficial in improving productivity.
  • Alternative policy measures should be taken for agriculture insurance.
  • Options like restructuring loans, increasing loan duration, minimizing interest rest etc. can be done.
  • Most of the farm loans are taken by those who actually do not need it. Proper analysis of loan records can be done to benefit real beneficiaries.
  • Implement Swaminathan Committee recommendations.


Schemes aimed at increasing farm produce, doubling the farmer’s income, ensuring food security have taken central place in policy making. Government in recent time has come up with other ways to improve farms like soil heath cards, eNAM, Mobile apps, PMKSY etc. All aspects and dimensions needs to be evaluated before applying measures of loan waiver.

Best answer: Anubhav

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