RC Passage-15

Passage: Political ploys initially hailed as master-strokes often end up as flops, The Rs.60.000 crore farm loan waiver announced in the budget writes of  100% of over dues of small and marginal  farmers holding up to two hectares, and 25% of over dues of larger farmers. While India has enjoyed 8%-9%GDP growth for the past few years, the boom has bypassed many rural areas and farmer distress and suicide shave made newspaper headlines. Various attempts to provide relief employment guarantee scheme. Public distribution system) have made little impact, thanks to huge leakages from the government’s lousy delivery systems. So, many economists think the loan waiver is a worthwhile alternative to provide relief. However the poorest rural folk are landless labourers, who get neither farm loans nor waivers. Half of the small and marginal farmers get no loans from banks and depend entirely on moneylenders and will not benefit. Besides, rural India is full of the family holdings rather than individual holdings and family holdings will typically be much larger than two hectares even for dirt- poor farmers, who will, therefore. be denied the 100% waiver. It will thus fail in both economic and political objectives. IRDP loans to the rural poor in the 1980s demonstrated that crooked bank officials demand bribes amounting to one-third the intended benefits. Very few of the intended beneficiaries who merited relief received it. After the last farm loan waiver will Similarly slow down fresh loans to deserving farmers. While over dues to co-operatives may be higher, economist Surjit Bhalla says less than 5%of farmer loans to banks are overdue i.e. over dues exist for only 2.25 million out of 90 million farmers. If so, then the 95% who have repaid loans will not benefit. They will’ be angry at being penalized for honesty. The budget thus grossly overestimates the number of beneficiaries. It also underestimates the negative effects of the waiver-encouraging willful default in the future and discouraging fresh bank lending for some years, Instead of hying to reach the needy, through a plethora of leaky schemes we should transfer cash directly to the needy using new technology like biometric smart cards, which are now being used in many countries. And mobile phones bank accounts. Then benefits can go directly to phone accounts operable only by those with bio metric cards, ending the massive leakages of current schemes. The political benefits of the loan waiver have also been exaggerated since if only a small fraction of farm families benefit and many of these have to pay bribes to get the actual benefit, will the waiver really be a massive vote- winner? Members of joint families will feel aggrieved that. Despite having less than one hectare per head their family holding is too large to qualify for the 100% waiver. All finance ministers. of central or state governments, give away freebies in their last budgets, hoping to win electoral regards. Yet, four-fifth of all incumbent governments are voted out. This shows that beneficiaries of favours are not notably grateful, while those not so favoured may feel aggrieved, and vote for the opposition. That seems to be why election budgets constantly fail to win elections in India and the loan waiver will not change that pattern.