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What is the Karnataka farm loan waiver plea all about? (Relevant for GS Prelims, GS Mains Paper III; Economics)

What is it?

Farmers’ distress has become a major concern in Karnataka, which has seen four years of drought in the past five years that has resulted in profound implications on the quality of life of farmers and the State’s economy. In the run-up to the Assembly elections, the Janata Dal (Secular) promised in its manifesto to write off farm loans from cooperative banks, regional rural banks (RRBs) and nationalised banks within 24 hours of the party coming to power. After all, between April 2013 and November 2017, at least 3,515 farmers reportedly ended their lives. After the fractured mandate in the elections, the JD(S) and the Congress formed a coalition government headed by H.D. Kumaraswamy. The Opposition and the single largest party, BJP, called for a State-wide bandh on May 28, which evoked a mixed response, demanding that Mr. Kumaraswamy immediately announce a farm-loan waiver.

How did it come about?

Farmers have been demanding waiver of all loans owing to crop loss and the crash in prices for the past four-five years. The crop loans alone stand at Rs. 53,000 crore, the total outstanding borrowings of farmers is Rs. 1.14 lakh crore. While some representatives of farmers have demanded waiver of all loans (Rs 1.14 lakh crore), the government has made a commitment to waive crop loans, largely for the benefit of small and marginal farmers, who own less than two hectares and constitute 75% of farmer households, in phases. In the State budget for 2017-18, former Chief Minister Siddaramaiah waived crop loans up to Rs. 50,000 borrowed only from the government-run cooperative banks and not from the nationalised banks and the RRBs. Now, farmers have been demanding that the new Chief Minister honour his promise by writing off loans borrowed from all institutions.

Why does it matter?

The farmers have always been the core vote base of the JD(S). Of the total 36 JD(S) MLAs, 31 were elected from the old Mysuru region, where farming is a major profession. Sugarcane and paddy growers in the Cauvery belt are in distress owing to the shortfall in rain and non-availability of water in canals. During an interaction with farmers last week, both Mr. Kumaraswamy and Deputy Chief Minister G. Parameshwara sought time to study the complex issues involved in loan waiver and to get more details of loans from different banks. Many people have taken farm loans and invested the amount in running fertiliser or pesticide business. Many have borrowed for buying vehicles and tractors and drilling borewells. Moreover, many people residing in the city have borrowed interest-free farm loans and deposited the sums in other financial institutions for higher interest. Many coffee-planters, having estates stretching over 500 acres, have borrowed crores of rupees from banks. Many farmers residing in tier-II cities have borrowed for marketing.

Legislators, employees of cooperatives earning a salary of Rs. 3 lakh a year and some individuals paying income tax of Rs. 3 lakh a year have taken farm loans. The question is should the government waive these loans.

What lies ahead ?

Mr. Kumaraswamy now realises that the promise is easier said than done. Compulsions of coalition politics, besides fiscal discipline, have forced the Chief Minister to seek more time to take a decision, though the Congress is not inclined to oppose it. It needs to treat the issue very “cautiously” to ensure that the benefit reaches the eligible farmers.

With the budget to be fixed at Rs. 2.10 lakh crore for 2018-19, the loan waiver, which comprises nearly one-fourth of the budget, will ruin the State’s economic health. The Chief Minister argued that resources should also be made available for other welfare schemes and development projects. As the Centre is unlikely to grant funds for loan waiver, State officials have been instructed to cut down on unnecessary expenditure.

(Adapted from the Hindu)

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