What about my loan

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The distress of the farmers can be understood through another set of statistics. “About 85% of outstanding debt of cultivator households from institutional agencies was in the interest range of 12 to 20% per annum. On the other hand, 36% of cultivator households’ outstanding debt from non-institutional agencies was at the interest rate of 20 to 25% and another 38% of outstanding debt at 30% and above. This shows the exploitative nature of non-institutional credit market,” stated the Radhakrishna Committee report.

Clearly, the Chidambaram’s loan mela will not help those it is meant for. Experts contend that the Finance Minister could have easily opted for other, more realistic, solutions to help the Indian farmer. Joshi thinks that the existing defaulters should have been made “eligible for another loan with a condition that previous ones will be waived off in case the first few installments of the new loan are paid back in time.” He adds that the government should have focused at long-term solutions to “augment farm incomes and empower farmers so that they are able to repay their loans.” Even Sharma admits that “a new mechanism has to be worked out to bail out farmers who have taken credit from the moneylenders, and crack down on a new breed of lenders, who charge exorbitant interest in the name of micro-finance. The loan waiver package does not address the real causes of growing indebtedness. It has to be accompanied with a road map that ensures that farmers do not pile up more debt in the near future. Or else, future governments will have to go in for yet another loan waiver.”

Others like S.L. Shetty, Director, EPW Research Foundation, believe that such loan melas “create a psychology amongst all classes of indebted farmers (even those who were willing to repay) to not repay their loans in future.” And the final word comes from Amir Ulah Khan, Director, India Development Foundation, who says that “the key to the success of the loan waiver (even in the form that Chidambaram expects) will be in the implementation of the scheme.” But knowing the delivery systems in the case of other welfare schemes in India, we know who will enjoy this Maha-Mela.

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Source : IIPM Editorial, 2008

An Initiative of IIPM, Malay Chaudhuri and Arindam chaudhuri (Renowned Management Guru and Economist).

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