Agriculture: Loan Waiver

Definition: A policy measure wherein the government forgives the outstanding loans of farmers, providing financial relief to those facing distress due to debt burdens.

Monsoon Failure: In India, agriculture is highly dependent on monsoons. Farmers take heavy loans for crop production. If the crop fails due to lack of rains or insufficient market demand, farmers get trapped in debt and it leads to Farmer suicides. Thus to overcome this government waives farm loans.
Food scarcity: Many farmers are leaving farming due to better money making alternatives. If this situation continues, there will be serious food scarcity. To prevent this situation, the government needs to gain the trust of farmers. Thus Farm loan waiver seems the only option.
Debt Cycle: Many farmers borrow money from moneylenders at high-interest rates and get trapped in a never ending cycle of debt. Farm loan waivers help to divert these farmers to borrow money from banks instead of money lenders.
Ineligible for bank credit: Many small farmers not eligible for bank credit borrow at exorbitant interest rates from private sources.
Relief to Farmers: Agriculture in India has been facing many issues — fragmented land holding, depleting water table levels, deteriorating soil quality, rising input costs, low productivity. Output prices may not be remunerative. Farmers are often forced to borrow to manage expenses. Indebtedness is a key reason for the many farmer suicides in the country. Loan waivers provide some relief to farmers in such situations.

Immediate Financial Relief: Farmers receive immediate relief from debt, allowing them to resume agricultural activities without the pressure of loan repayment.
Increased Agricultural Investment: With reduced debt, farmers can invest in better seeds, fertilisers, and farming equipment, potentially increasing agricultural productivity.
Socio-Economic Stability: Loan waivers can lead to improved socio-economic conditions in rural areas, reducing financial stress and associated issues such as farmer suicides.

Moral Hazard: Frequent loan waivers can encourage a culture of non-repayment, with farmers expecting future waivers.
Fiscal Burden: Loan waivers impose a significant financial burden on both state and central government finances, potentially leading to budget deficits and reduced spending on other essential services.
Credit Discipline: Disrupts the discipline of credit markets, making banks wary of lending to the agricultural sector in the future.
Temporary Solution: Loan waivers address the symptoms rather than the root causes of agrarian distress, such as low productivity, market inefficiencies, and lack of infrastructure.

Crop Insurance Schemes: Programs like the Pradhan Mantri Fasal Bima Yojana (PMFBY) protect farmers against crop failure due to adverse weather and other risks.
Improved Irrigation Facilities: Enhancing irrigation infrastructure to ensure reliable water supply for agriculture, reducing dependency on monsoon rains.
Market Access and Minimum Support Price (MSP): Ensuring better market access and a robust MSP system to guarantee farmers receive fair prices for their produce.
Financial Literacy Programs: Educating farmers on managing finances, accessing credit responsibly, and using financial products effectively.
Infrastructure Development: Investing in rural infrastructure such as roads, storage facilities, and cold chains to support agricultural activities and reduce post-harvest losses.