punjab

Updated: Apr 04, 2017 09:57 IST

Punjab is in a fix, and so is Uttar Pradesh. The newly-formed governments in both the states are trying out all kinds of permutations and combinations to address the complicated issue of farm loan waivers.

While Punjab has decided to form a committee to ascertain the extent of bad farm debt that will need to be written-off, state finance minister Manpreet Singh Badal is toying with the possibility of ‘owning’ the total farm debt, treat it as loan to be repaid back over the long run. Uttar Pradesh faces a still bigger dilemma since Prime Minister Narendra Modi had, in election rallies, promised to write-off farm debts in the very first cabinet meeting, if the BJP is voted to power.

With Union finance minister Arun Jaitley making it clear that the Centre will not be taking on the financial burden of farm loan waiver, all eyes have now shifted to how Punjab and UP intend to tackle this contentious issue. The promise of farm loan waiver remains a politically hot issue, and what make it difficult to implement is the overtly stressed financial balance-sheets that both the state governments have inherited.

“If a state has its own resources and wants to go ahead in that direction, it will have to find its resources. The situation where the Centre will help one state and not the other will not arise,” Jaitley recently said in Rajya Sabha, implying that farm loan waivers are a state subject. States will have to use their own resources to bail-out the stressed farming communities.

Agriculture is indeed a state subject, but when it comes to industry, which is also a state subject, the finance ministry has no qualms about writing-off of the massive bad debt. The Public Accounts Committee of Parliament has estimated that the total bad loans of public sector banks, termed as Non-Performing Assets (NPAs), stands at Rs 6.8 lakh crore. Of this amount, 70% are of the corporates, with farmers making up just 1%.

Credit rating agency, India Ratings, says that more than Rs 4-lakh crore of stressed corporate loans is likely to be waived.

Chief economic adviser Arvind Subramaniam has gone on record saying that writing-off of bad loans of the corporate sector makes economic sense. “This is how capitalism works,” he said. If this true, I don’t know why capitalism doesn’t work the same way for farmers.

TREAT THEM ON A PAR

The industry as well as farmers default on loans from nationalised banks and should therefore be treated in the same manner. Between 2012 and 2015, Rs 1.14-lakh crore of corporate NPAs has been written-off. Surprisingly, no state government was asked to bear the burden from its own revenues.

Even for the Rs 4-lakh crore of NPAs that India Ratings expects the banks to write-off in near future, no state government is being asked to take on the burden. The question that needs to be asked, therefore, is that why the state governments should be asked to waive farm loans from its own resources?

Take the case of steel giants. A report in Business Standard (Mar 23) says that the Prime Minister’s Office (PMO) is likely to step in to resolve steel companies’ bad debts issue. The PMO, along with the finance ministry, was working on a fresh package for top steel companies and also for the top 40 accounts that were under stress. The total debt of these companies stands at Rs 1.5 lakh crore. In contrast, for both Punjab and UP, the total bad debt in farming is unlikely to exceed Rs 75,000-crore.

The outstanding debt of Bhushan Steel stands at Rs 44,478-crore, which alone is more than the expected Rs 36,000-crore farm bad loan in Punjab, which the state government is likely to ‘takeover’. Jindal Steel & Power owes Rs 44,140-crore, which is way above the farm loan waiver that UP government is staring at. The corporate offices of Bhushan Steel and Jindal Steel are located in New Delhi but at no stage, has the Delhi government has been asked to write-off these from its own resources.

Maharashtra is seeking a farm loan waiver of Rs 30,500 crore. This is less than the outstanding loan of Rs 34,929 crore that Essar Steel alone holds.

How fair is it to allow the banks to write-off Essar Steels bad debt while asking the Maharashtra government to strike out bad farm loans from its own resources?

CLUB FARM LOANS AND CORPORATE LOANS

As a solution, farm loans need to be clubbed with corporate loans. Since both agriculture and industry are state subjects, it is unfair to treat them differently when it comes to loan waiver. Unless this is done, states will always find it difficult to bail out farmers in distress. State governments should refuse to write-off outstanding farm loans from its own revenues.

Not only for the total farm bad debts of nationalised banks, let the cooperative bank/societies loan write-off, in turn, be a responsibility of the National Bank for Agriculture and Rural Development (NABARD).

The states should impress upon the government to set up a farm monitoring group in the PMO in line with the project monitoring group (in the PMO) which looks at recasting corporate loans and also the write-offs.

hunger55@gmail.com

(The writer is a SAS Nagar-based commentator on agriculture and food policy)