AGRI LOAN WAIVER – A POISONOUS HYDRA

How to spoil a child rotten? The parent makes the rules and earns the reputation of being the disciplinarian but the grandparents to placate the crying child, inadvertently teach the child to defy the parents, telling them they need not worry, do as you wish because “we control your parents too!”

That’s how one can explain the current scenario between the Indian farmers, banks and the politicians. The Indian farmers are spoilt rotten! They take loans, which come at much cheaper rates and then do not repay because they know elections are round the corner. Why pay when they know a waiver will soon come?

HDFC Bank has admitted that repayment pressures in agri loans have gone up. In June quarter, agri NPAs rose 40% (YoY). And it’s obviously not because they don’t have the money to repay. Consider this – during the same period that they did not repay, HDFC Bank’s Kisan gold card portfolio rose 20%.

Another thing which the banks have noticed is that stress typically starts happening first in states where elections are scheduled. But now with the entire country going to the polls in mid-2019, we can only shudder to think about how much more stress could come into the agri loan sector.

Unfortunately, these politicians have given rise to a crop of farmers who take debt, knowing fully well that it will be waived off – a culture of default is on the rise. The Govt dare not say this aloud because it will then hurt its biggest rural vote bank. Isn’t there something seriously wrong here? Economics be damned while we want to shout from roof tops that we are the fastest growing economy in the world? We want to call ourselves a mature economy but are we really?

Farm loan waiver has actually become a state policy now – it should be made official. Every state should mark out a portion of their budget for this and every bank should also be prepared with a “reserve” for this contingency. Arun Jaitley did say that the state govts will have to fund these loan waivers but ultimately wont they borrow from PSU banks which in turn comes under the gambit of RBI? Or we could see various “surcharges” in many states to raise funds for the farmers loan waiver – it is like the toll taken; even when the cost of the road is recovered, toll remains a permanent fixture.

So it’s like this – if you are super rich, you can get anyway with anything – murder is a small thing but even tax evasions and loan defaults. And if you are at the other end of the spectrum – the very poor farmer, you could have taken loans to get your daughter married or repair your home or buy a new tractor but today all that debt could get waived off. Thus the middle class is left with the bill – we pay for the largesse enjoyed by the bigwigs and also for the debt waiver enjoyed by the farmers. Except for the FMCG and vehicle companies, no one is even interested in wooing us anymore. But yes, the teeming multitude of people going to work and earning a living sincerely are made to pay for all the fallacies, be it the Govt or banks. We pick up the tab for everything.