Why in the News
The Maharashtra government has announced a ₹35,000 crore farm loan waiver scheme, raising concerns from economists and the Reserve Bank of India (RBI) about its impact on credit culture and state finances.
Key Features of the Maharashtra Scheme
- Total cost: ~₹35,000 crore
- Beneficiaries: ~30 lakh farmers
- 20 lakh non-defaulters will receive an ₹50,000 incentive for timely repayment.
- Cost breakdown:
- ₹20,000 crore for loan waiver of defaulters
- ₹15,000 crore incentive for regular borrowers
Why Governments Announce Farm Loan Waivers
- Reduce farmers’ debt burden
- Provide relief during agrarian distress
- Enable farmers to restart productive investment
- However, economists argue that such schemes often fail to provide long-term solutions.
Major Farm Loan Waiver Schemes in India
National Schemes
- Agricultural and Rural Debt Relief Scheme (ARDRS), 1990
- Covered loans from public sector banks and regional rural banks.
- Maximum relief ₹10,000 per farmer.
- Agricultural Debt Waiver and Debt Relief Scheme (ADWDRS), 2008
- Covered banks and cooperative credit institutions.
- Focus on small and marginal farmers (≤5 acres).
Total spending on waivers in last 35 years: over ₹3 lakh crore.
Trend Since 2014
- Farm loan waivers increased significantly after 2014–15.
- 10 states announced waivers worth about ₹2.4 lakh crore.
- Many announcements occurred close to elections, according to RBI.
RBI’s Concerns
- Weakening of Credit Culture: Farmers may delay repayment expecting future waivers. Creates moral hazard in the credit system.
- Reduced Agricultural Lending: Banks become reluctant to provide fresh loans.
- Rise in NPAs: Agricultural sector gross NPAs reached about 8.44% (2019).
- Fiscal Burden on States: Waiver costs can reach 0.1% to 2% of state GSDP. Payments often spread over 3–5 years, affecting budgets.
