PROBLEMS GALORE WITH THE 2008 ALL-INDIA LOAN WAIVER
In 2008, central government announced a one-time write-off of loans for 3.7 crore small and marginal farmers and 60 lakh other farmers. The scheme was audited by the Comptroller and Auditor General (CAG), finding flaws ranging from wrong inclusion and exclusion of beneficiaries to outright institutional corruption. Here are the 12 key observations of CAG:
1) 13.5% of eligible beneficiaries in CAG’s audit sample were not considered for loan relief by banks.
2) 8.5% cases where ineligible beneficiaries received relief.
3) 6% of farmers not given benefits according to their entitlement.
4) 34.3% cases without any proof or certificate of debt waiver or relief, which entitles farmers to fresh loans.
5) There were several instances of car loans and personal loans getting benefit of the farm loan waiver scheme.
6) Debt relief was given in many cases where loans were not taken during the period specified in the scheme.
7) A private bank received reimbursement from govt for loans extended to micro-finance institution.
8) In some cases, banks kept the money, denied benefit to farmers.
9) There were instances of banks recovering full loan amount from farmers, although they were eligible for 25% debt relief.
10) Some banks, including ICICI, SBI, Central Bank and cooperative and gramin banks in Chattisgarh, made claims in excess of benefit extended by them.
11) Documentation was not proper — there were instances of tampering, over-writing and alteration of records.
12) Scheme finalised on May 28, 2008; banks asked to draw up beneficiary list by June 30.
CLEAR NO FROM EXPERTS
A sad race to the bottom has begun. If loan waivers would fundamentally alleviate farmers’ plight, waivers would be a welcome step. But if after 70 years of independence, farmers remain in distress, we need to seek different solutions.
It often goes to the best connected rather than those most poorly off. Second, it obviously creates enormous problems for the fiscal of the state once those waivers are done. And, unfortunately, it inhibits investment down the line.
A farm loan waiver undermines an honest credit culture and impacts credit discipline… it engenders moral hazard and also entails transfer from taxpayers to borrowers. We need to create a consensus that farm loan waiver promises are eschewed. Otherwise, sub-sovereign fiscal challenges in this context could eventually affect the national balance sheet.
STATE-SPONSORED LOAN WAIVERS
Since 2014, eight states have written off loans to farmers and four more states — Rajasthan, Assam, Chattisgarh and Madhya Pradesh — had announced the waiver. The debt relief is paid through state budgets. A TOI investigation on state-govt sponsored debt relief found some shocking facts. First, waiver covers only a fraction of loan. Second, relief is paid in kind (eg fertiliser) and third there is no relief to farmers who paid loan on time — disincentive for being a ‘good’ borrower
Source: RBI and CAG report