Chief Minister Edappadi K. Palaniswami’s announcement of waiving outstanding crop loans of ₹12,110 crore is the highest quantum of loan waiver ever in Tamil Nadu. It is different from the earlier schemes for another reason. The earlier two schemes, unveiled by M. Karunanidhi in May 2006 and Jayalalithaa in 2016, were formulated at the beginning of the terms of the DMK and AIADMK regimes, whereas the recent one is at the fag end of the term of the current government.
In 2006, the DMK government decided to write off all types of loans — short term, medium term and long term — for all categories of farmers, regardless of the size of landholdings. At the time, the amount was ₹7,000 crore. It was for the first time that a State government waived farm loans due to cooperative banks by agriculturists.
Ten years later, the AIADMK government, while returning to power for the second consecutive time, wrote off loans of around 12.02 lakh small and marginal farmers, owning land up to 5 acres, to the tune of about ₹5,320 crore. It left out big farmer-loanees, numbering around three lakh, who had an outstanding amount of nearly ₹1,980 crore.
But this time, the State government did not make any distinction among farmers, but has chosen to cover only short-term crop loans, unlike in the previous occasion, when medium-term and long-term agricultural loans too were covered under the waivers.
Paper on waiver
On the efficacy of the 2016 scheme, a 2018 paper, authored by Deepa S. Raj and Edwin Prabu A. and published in No.1 & 2, Vol. 39, of the Reserve Bank of India Occasional Papers, stated that the scheme was “effectively implemented.” However, the co-operative institutions faced funding constraints in 2016-17 due to two reasons: the impact of the loan waiver and the cash withdrawal limits placed during demonetisation that had affected their lending. But next year, the constraint eased, consequent to the receipt of reimbursement from the State government. “Hence, the waiver seems to have affected the ability of lending institutions to extend loans, rather than their willingness to do so,” the authors pointed out.
Though the scheme helped reduce rural indebtedness of small and marginal farmers to a limited extent, the overall indebtedness of farmers to formal as well as the informal sector continued to remain high, the researchers concluded.
The main report of the 15th Finance Commission, formulated in October 2020, preferred income support schemes to the idea of farm loan waivers, as they “are relatively more inclusive and do not have the moral hazard problem that is inherent in farm loan waivers.”
Asked whether the waiver would not create a moral hazard, Kovai K. Selvaraj, AIADMK spokesperson, replied that the government’s move was made as “a large number of farmers” had been affected due to the two cyclones, last year, and unseasonal rain last month. The State government had also approached the Centre for assistance to farmers.
