International Journal of Academic Research and Development

International Journal of Academic Research and Development


International Journal of Academic Research and Development
International Journal of Academic Research and Development
Vol. 2, Issue 5 (2017)

Farm loan waivers and state finances


Vandana Rathore

Food security and the welfare of farmers is considered as the utmost priority of the state. The number of farmer suicides increasing at one hand and the protests and demonstrations of farmers on the other reflect the deep rooted agrarian crisis persistent in the Indian economy. The human tragedy and socio-economic crisis precipitated by farmer suicides in several regions require immediate attention of the state with appropriate intervention mechanisms. Responding to the situation, the state governments of Uttar Pradesh, Maharashtra and recently Punjab have announced loan waivers for the small and marginal farmers. Madhya Pradesh has resisted to join the bandwagon and has instead offered an alternative of providing fresh credit at zero interest for the next cycle. While State has a moral responsibility of responding to the situation, whether farm loan waivers is the the most appropriate instrument remains a persistent question. Empirical evidence reveals that farm loan waivers though provide a short term relief to the farmers but they have never been able to provide the intended relief. Infact, Debt relief does not improve the investment or productivity of beneficiary households, but leads to a strong and persistent shift of borrowing away from formal sector lenders.
Starting its use from 1990s, when the government first used farm waiver, it has always been observed that every after loan waiver, a spike in non institutional credit was observed that loan waivers doesn’t only lead to burden on the financial health of the state but also to lead to the moral hazard problem which ultimately hurts the farmer in the long run.
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How to cite this article:
Vandana Rathore. Farm loan waivers and state finances. International Journal of Academic Research and Development, Volume 2, Issue 5, 2017, Pages 722-725
International Journal of Academic Research and Development International Journal of Academic Research and Development