This appeared in CNBCTV18, here

Election season in India means fierce competition for farmers’ votes. With 52 percent of farmersin debt, loan waivers are a clear vote-winners for political parties. However, is it enough?

With the recently concluded state elections in Chhattisgarh, Madhya Pradesh and Rajasthan, a new phase of farm loan waivers has begun. The newly anointed Madhya Pradesh chief minister Kamal Nath was first off the mark. Just days into his government, he waived off farmer loans of up to Rs 2 lakh. NSSO data show that over 47 percent of farmers in Madhya Pradesh are in debt.

Bhupesh Bhagal, chief minister, Chhattisgarh, too announced a Rs 6,100 crore loan waiver package intended to bring relief to over 16 lakh farmers. Rajasthan has also followed the suit.

Gujarat, that has been claiming it cannot afford a loan waiver, has written off rural electricity bills to the tune of Rs 650 crore.

Loan waivers, popular as they are, are a short-term fix for a far graver problem facing the Indian farmer. One of these is lack of access to working capital and the inevitability of turning to debt; the second is the size of farm holding that prevents economies of scale which in turns leads to low earnings and as a consequence, more debt.

Farmers who need it the most, do not have access to the formal credit system. It is estimated that 26 percent of all the agricultural debt is held by private money lenders and not banks. These loans are not getting waived. Also, the loan waiver does not put money in the farmer’s hand. It goes straight to the bank. So, the expectation of a demand boost is going to be short-lived. An associated problem is the fact that those who have paid their loans so far, have no incentive to do so in the future.

There is another historical problem — the size of landholdings. As per the Agriculture Census of 2011, over 85 percent of all agriculture holdings are less than two hectares. This means farmers do not have enough land to use the more advanced forms of farming to produce a bounty that would earn enough money for the households to pay their bills and lead a decent life. Most have to pick up unskilled casual labour job to make ends meet. 36 percent of agricultural households possess below poverty line (BPL) cards and 44 percent are dependent on MNEREGA wages.

Loan waivers and electricity bill waivers are good optics and provide some measure of short term relief to the farmer. However, this situation of high debt and inability to pay it back will resurface unless the government does something to fix how agriculture is conducted in the country.

Farmers simply do not earn enough to make a living. Their input costs – seeds, fertilisers, transportation to and from markets – are about the same, if not higher, than what they earn from farming. That a farmer’s child cannot eat two square meals, or that they wear torn clothes when their parents grow cotton is unacceptable. Loan waivers, hence, are like putting a band aid on a jugular wound. Governments have to look at a way of consolidating various land holdings into larger aggregates to enable co-operative agriculture. This would enable farmers in the local co-operative negotiate inputs needed for farming and the price of the produce. Naturally, before the dust on this loan waiver settles, there will be clamour for more.