Why do economists frown at farm loan waivers but keep quiet when massive corporate bad loans are written off?

If bad loans of indebted farmers had been waived perhaps they would have escaped committing  suicide. 

This picture is of a congregation of farm widows in Punjab

No sooner did the Maharashtra Chief Minister Uddhav Thackeray announce a farm loan waiver that is expected to cost anything between Rs 45,000 to Rs 51,000-crore, mainline economists have warned of the rising NPAs of the banks and the strain it causes to the already precarious fiscal position of the State governments.

But strangely, the same questions were not raised when almost a month back, in early December, the Minister of State for Finance Anurag Thakur had in a written reply in Parliament, stated that public and private sector banks have written-off Rs 80,893-crore during April-September 2019 period. According to news reports, when asked who the beneficiaries were, the minister replied: “As borrowers of loan write-offs continue to be liable for repayment and the process of recovery of dues from the borrowers in written-off loan amounts continues, write-off does not benefit the borrower.”

It is true that write-offs are not exactly waivers since it only means that the bad loans are shifted from the bank books to another ledger while the recovery process continues. But the write-offs certainly do benefit borrowers. Let’s be clear, it is not as if the entire bad debt is recovered by banks. The percentage of bad assets that the banks are finally able to recover is far too low. As per the RBI, the rate of recovery of bad loans had come down from 18.4 per cent in the financial year 2014, to a low of 12.4 per cent by March 2015. It further declined to 10.3 per cent in the financial year ending March 2016. To illustrate, out of an outstanding amount of Rs 221,400-crores of bad loans in 2016, only Rs 22,800-crore could be recovered. It will be interesting to know what happened to the remaining Rs 198,600-crore.

Although under the Insolvency & Bankruptcy Code (IBC) 2016, the recovery of bad loans has shown a marked improvement – from 49.6 per cent in 2017-18 it has trailed to 42.5 per cent in 2018-19 – a total of Rs 70,819-crore was recovered against a pending amount of R 1.66-lakh crore for 1,135 cases admitted before National Company Law Tribunal (NCLT) for insolvency resolutions in 2018-19. Add to this recoveries made through other routes like Lok Adalats, Debt Recovery Tribunals and SARFAESI Act, the scheduled commercial banks managed to recover only Rs 1.26 lakh crore from a total outstanding of Rs 8.15-lakh crore in 2018-19, which shows to be only 15.5 per cent. With the actual recovery being dismal, it is the banks which end up taking the hit. No wonder, the government had two years back announced a bank recapitalisation programme of Rs 2.11- lakh crore to bailout banks, followed by another Rs 70,000-crore in 2019.

Against these corporate write-offs, farm loan waivers in the past six years total to Rs 2.85 lakh crores (adding the proposed Rs 45,000-crores waiver in Maharashtra). Compare this with just 354 liquidation cases pending for 2020. According to a news report, the claims for liquidation in respect of these companies stand at a staggering Rs 3.55-lakh crores. As per the data available with Insolvency and Bankruptcy Board of India only 4 per cent of this will be realised, which means only Rs 15,165-crore. Banks are staring at zero realisations in many of the insolvency cases pending.

While the bank write-offs affect a limited number of borrowers, a significant number of them being wilful defaulters, Maharashtra’s farm loan waivers are expected to benefit 44-lakh small and marginal farmers. Drawing from the experience of Punjab, Maharashtra has decided to waive bad farm loans up to an outstanding of Rs 2-lakh for each farmer. The problem with the Punjab farm loan waiver scheme is that only outstanding loans up to an exact Rs 2-lakh are waived, which means if the outstanding bank amount exceeds Rs 2-lakh even by Rs 500 the farmer will not get the waiver. This has led to a lot of resentment among Punjab farmers. I only hope Maharashtra is not following the Punjab example in letter and spirit.  

Coming at a time when a continuing drought was followed by heavy rains, a phenomenon termed as ‘wet drought’, standing crops in 70 lakh hectares are feared destroyed in Maharashtra. According to revenue estimates, almost 85 per cent of the kharif crops in Marathwada region were destroyed. While more than 1-crore farmers were affected from the incessant post-monsoon rains, the State had assessed the crop loss to be more than Rs 5,000-crore. Officials say Rs 6,552-crore has so far been distributed as crop loss compensation.

With farm distress continuing over decades, Maharashtra has turned into a hotbed of farmer suicides. In November 2019, a record 300 farmers had reportedly committed suicide. In the 6-year period between 2013 and 2018, an RTI response showed 15,356 farmers had committed suicide. It is generally agreed that the distress is primarily because farmers have continuously been denied their rightful income. An OECD-ICRIER study shows, between 2000 and 2016, Indian farmers lost Rs 45-lakh crore for not being paid the right price. In the past seven years, as per Niti Aayog calculations, growth in real farm incomes had remained at ‘near zero’. In such a depressing farm scenario, farm debt has continued to multiply. Farm loan waivers therefore provide an immediate relief. #  

Maharashtra farm loan waiver justified. Deccan Herald. Jan 10, 2020
https://www.deccanherald.com/opinion/in-perspective/maha-farm-loan-waiver-justified-793003.html?fbclid=IwAR0PWj9nAgIvBaYmOavApo5dki8rxd5drGspux37gTS7hVwarl1ZV9OyEjM

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Cities drought-proofed, farms and farmers left to die.

Water trains can provide relief to residents in Chennai. But what about 600 million people reeling under drought in rest of the country? 

As millions of Chennai residents are faced with a severe water crisis, Tamil Nadu is requesting Kerala to supply two million litres of drinking water every day. Chief Minister E K Palaniswami said his government has also decided to ferry by train 10 million litres of drinking water daily from Vellore to Chennai for the next six months. While extraordinary steps are being taken the meet the water exigency in the metropolis, in neighbouring Karnataka, a few kilometres outside Bangalore city, life comes virtually to a standstill. With 88.6 per cent of Karnataka -- 156 of the 176 -- hit by a raging drought, it will take several years for the rural economy to bounce back if the rain gods do not play truant in future.

Karnataka’s Economic Survey 2018-19 has painted a distressing scenario. It has projected a negative growth rate of minus 4.8 per cent in agriculture. With a shortfall of 22 per cent pre-monsoon rains between March to the end of May, and a total deficit of 41 per cent in southwest monsoon rains till June 19 across the country, agriculture in the southern peninsula – Tamil Nadu, Karnataka, Kerala, Andhra Pradesh, Telengana and Goa – has been badly hit because the rainfall deficit encountered in these areas is a lot higher at 56 per cent. A joint survey to access the loss suffered in the rabi season is underway in most places. Delayed and scanty rains expectation in the weeks to come may add on to the prevailing rural distress.

While Bangalore is among the four metropolis -- the other three being, Chennai, Hyderabad ad Delhi -- that will run out of ground water by 2020, as per a NITI Aayog report, the city requires 1,400 million litres per day with reports penning the current availability at an average of 65 litres per capita per day. Strangely, while the rest of the state has been reeling under a series of drought – at least for 12 years in the past 18 years at a stretch, Bangalore city remains insulated. This is despite 79 per cent of its water bodies drying up in the past four decades. Hyderabad too doesn’t give an iota of the terrible water crisis prevailing on either side of the city in Telengana and Andhra Pradesh – a clear reflection of the drought-proofing accomplished over the years in urban areas.

In Maharashtra, where 72 per cent of the state is engulfed in a severe drought, some consider it to be the worst since 1972, the total crop loss in rabi production has been pegged at 63 per cent as compared to a year before. The output of cereals has fallen by 68 per cent, pulses by 51per cent, oilseeds 70 per cent, wheat 61per cent, and maize by 75 per cent. As per Economic Survey 2018-19, agricultural output in Maharashtra had declined by minus 8 per cent. Such is the magnitude of the water crisis that more than 50,000 farmers in Ahmednagar district alone have abandoned their homes and migrated to live in the 500 makeshift cattle camps that have been set up. When there is no water for daily use, and crop fields had turned barren what else could have been expected from the villagers, who find it safe to move into the cattle camps. There are at least 10 lakh cattle in the 1,500 cattle camps that have been set up across the state.

Numerous reports have highlighted the grave water crisis that prevails in Maharashtra where water guzzling sugarcane crop alone consumes as much as 76 per cent of the available ground water. And yet I haven’t seen any effort to encourage farmers to shift from sugarcane to other less water consuming crops. Ironically, not more than 6 per cent of Maharashtra’s cultivable land is occupied by sugarcane. This is primarily because of the politically powerful sugar lobby, which is not willing to make a change in business proposition. 

Since While 60 per cent of the orange orchards have also reportedly dried up in Marathwada region, the prediction of a shortfall in monsoon rains expected in the central regions of the country adds up to the prevailing rural misery. No wonder, Maharashtra has officially recorded 12, 021 farmer suicides in the past four years. Yet, farmers have not given up on hope, returning to their villages to plough their land and be prepared in time for the rains to arrive. Cotton sowing in the famous black cotton soils should finish by the first week of July, any further delay in sowing would be detrimental.

With 43.4 per cent of the country reeling under a drought affecting 600 million people, the continuing drought in several parts of the country – Jharkhand for instance had faced seven consecutive years of drought till 2017 – the prevailing rural misery and continuing distress over the years cannot be even imagined. But with the cities being increasingly insulated from the drought that prevails in the countryside, the dominant narrative very conveniently shifts to the decline in rural consumption as if it is a measure of rural deprivation. That the tractor sales have fallen by 31 per cent in the southern states is being seen as economic fallout of the continuing drought. Similarly, the slump in sales of cars and automobiles occupies larger space in the media.

The human cost of the resulting rural tragedy has never been estimated. Perhaps an indication was provided by the Economic Survey 2016 when it worked out the average farm income in 17 states of India, roughly half the country, at Rs 20,000 a year. In other words, on an average a farm family was somehow surviving in half the country on less than Rs 1,700 per month. That is why farmers in Maharashtra have been quoted as saying in the media: “People have stopped expecting a decent life.” #

Cities drought-proofed, farms and farmers left to die. Deccan Herald. June 23, 2019
https://www.deccanherald.com/specials/sunday-spotlight/cities-drought-proofed-farms-and-farmers-left-to-die-742224.html?fbclid=IwAR331h_G7JFjV1lw8qDojH7b7nzws_9dAQmP4rmbdJ7HvUzsmTAmFx7pqo0 

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To create private markets, Maharashtra deregulates APMC Act

A typical mandi scene -- Pic courtesy Hindu Business Line

It is not unusual for wheat and paddy grown in adjoining areas of Uttar Pradesh to find its way into Haryana mandis. But at the peak of the paddy procurement season this year, a lot of paddy procured in Bihar has been transported all the way to be sold in Punjab and Haryana. As per news reports, more than 2.5-lakh bags of paddy from Bihar have been seized in a month-long drive conducted by the Punjab and Civil Supplies department. In addition, another 2-lakh bag of previous year’s rice meant for PDS supplies in Bihar have also been seized.

In neighbouring Haryana, more than 1.25-lakh bags of rice meant for PDS supplies in Bihar have been seized from Karnal and its adjoining areas in raids conducted during September and October. In an interesting development, The Tribune(Oct 26) reported Karnal district alone having purchased more than double the anticipated production even though the paddy procurement season was half way through. This was essentially because of a well-oiled nexus that exists between traders in Bihar, Uttar Pradesh and Haryana whereby cheaper paddy/rice purchased from as far as Bihar is made available for procurement at a higher price in Haryana.

The reason is simple. While Uttar Pradesh lacks a well-knit system of a mandis network under the Agricultural Produce Market Committee (APMC) Act, Bihar had revoked the APMC Act way back in 2006. In the absence of APMC mandis, farmers in Bihar are constrained to sell wheat and paddy in open market at prices that are far below the Minimum Support Price (MSP). That is why traders find it profitable to transport paddy (and also wheat) from a pretty long distance and that too after having incurred an additional transportation cost. While paddy sells at anything between Rs 800 to 900 per quintal for low quality grade, and a maximum of Rs 1,300 to Rs 1,500 per quintal for good quality in Bihar, paddy MSP for normal quality in Punjab and Haryana is substantially higher at Rs 1,750 per quintal.

While Bihar was the first State to have repealed the APMC Act, Maharashtra has now become the second State after Bihar to have amended the APMC Act. A few months after it had brought in a notification making it obligatory for the trade not to purchase agricultural commodities below the MSP, in a complete turnaround it has now promulgated an Ordinance on Oct 25 deregulating all produce, including foodgrains, oilseeds and flowers, from the APMC Act. The new directive allows farmers to sell their produce outside the regulated APMC markets in the State. Earlier too, in June 2016, it had passed an amendment deregulating fruits and vegetables from the APMC Act but there are no studies telling us whether the move has helped farmers in any way. We have only seen reports of farmers dumping veggies on the streets in the absence of market prices even covering the cost of production.   

“The first step is to pass an Ordinance. The rules will be notified within 15 days,” Sadabhau Khot, the state minister for agriculture and market reforms told a media channel, adding “the idea is to create private markets with similar facilities as APMCs, while ensuring healthy competition.” While I am not sure how much the APMC amendments will help Maharashtra farmers in price discovery, it will certainly be interesting to watch how soon the trade opens marketing channels to make available Maharashtra paddy for procurement in Punjab and Haryana. When Bihar revoked the APMC Act some 12 years ago, the expectations were the same. The basic idea was that removing the monopolistic control of APMC markets will allow private investments, motivate the corporate sector to undertake direct marketing and provide for more efficient markets. Nothing like this happened. In fact, Bihar has turned into a test case to know how best agriculture can be turned exploitative.

“The amendments have been made in accordance with the Centre’s Modal Agricultural Produce and Livestock Market Act 2017,” the minister stated. In fact, this is where the problem lies. The inter-ministerial task force (in 2002) that initially recommended the APMC Act to be amended did not ascertain the social fallout of withdrawing an assured market for small farmers but was driven by the industry’s prescription. Contract farming, direct marketing and public-private partnership is only aimed at dismantling an excellent social framework which so assiduously helped build food security. Even the Food and Agriculture Organisation of the UN has questioned the need to repeal the assured markets saying that its social determinants first need to be evaluated. The main argument that APMC mandishave become stronghold of cartels is certainly correct, but that’s an issue of failure of governance. Instead, dismantling the mandiinfrastructure and replacing it with still bigger cartels of private players under the PPP mode is not the way forward, and will only lead to making the available infrastructure for corporate agriculture. In other words, we are fast moving towards privatisation of profits and socialisation of costs.   

Nevertheless, deregulation of APMC Act in Maharashtra comes at a time when a few weeks back the Centre had committed to procure 25 per cent of the agricultural commodities for which a higher MSP is being announced. Although the rules have still to be notified, and the finer print is awaited, but it is quite obvious that the amendments will reduce the delivery of MSP to farmers. This is exactly what the FICCI and CII had been demanding for long, wrongly saying that a higher MSP comes in the way of farmers realising a much higher price. Punjab and Haryana face tremendous pressure to dismantle the existing APMC infrastructure. In fact, the Commission for Agricultural Costs and Prices (CACP) too had come out with a study some years back ranking the State’s as per their market friendliness. Incidentally, Bihar topped the market-friendly index, and Punjab, with its widespread network of mandis, purchase centres and rural connectivity was placed at the bottom.

At a time when only 6 per cent farmers get the benefit of MSP prices, and when 94 per cent farmers are in any way dependent on markets, how does a breakdown of a parsley available public sector market infrastructure lead to increasing competitiveness? Moreover, it leaves behind a huge cost for country’s food security. It was in 2007-08 that the then Agriculture Minister Sharad Pawar had allowed private companies to bypass APMC mandis and buy wheat directly from farmers. With pvt companies cornering as much wheat as possible, it resulted in such a massive shortfall in public procurement that the country had to eventually resort for nearly 8 million tonnes of wheat imports in two years, at roughly double the MSP that was being paid to domestic farmers.#

Tender Mercies in Open Markets. The Tribune. Nov 14, 2018
https://www.tribuneindia.com/news/comment/tender-mercies-of-open-markets/682538.html

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