MS Swaminathan
Founder and Chairman, MS Swaminathan Research Foundation

Q: Could we start with your overall impressions of the loan waiver?

A: The National Commission on Farmers (NCF)¹ actually recommended the loan waiver to the Ministry of Agriculture in 2005. The loan waiver is the beginning of a process in which our goal should be getting over 30 million small and marginal farmers back into the credit system and back to productive farming.
If you could look at the loan defaulters, they are mostly in non-irrigated agricultural farming areas, which is where about 60% of our farming occurs while the other 40% is on irrigated land. Moreover, the declining levels of groundwater has meant that even those who work on irrigated land are beginning to rely more on rainwater, and sometimes the rain fails. If a farmer has to repay a loan every year, and the rain fails in a couple of years, it is better to waive the loans and start off with a clean slate. This would help farmers to get out of the debt trap, especially if following the waiver, farmers become eligible again for institutional credit. So, the loan waiver should be the beginning of a process, not the end of a process. Basically, we have a system of agricultural credit that is not structurally sound. The reason why the current loan system has failed is because none of the support systems that farmers possess in other countries like Japan and the United States exist here. We do not have effective crop or weather insurance systems. When the rain fails, farmers still need to pay back their loans. As a result, the farmer goes to a moneylender to pay off existing loans. This is what happens often with micro-credit; people are socially pressured to pay off the loans.
Therefore, if we can write off loans totaling thousands of crores for industrialists, our poor farmers who have no support system and no technology, who dry their paddy on the road, deserve a waiver. In the 21st century, we are leaving more than 80 million small and marginal farmers without adequate support systems, no technological support, or social support. How will they pay back the loans? Of course, the only other option for them is to commit suicide.
Unfortunately, the government has not crafted the loan waiver in a holistic manner the way the NCF recommended. I have been saying in recent articles that the loan waiver is important because there are no effective support services to insulate small farm families from risks beyond their control. No insurance, no support, no early warning system for rainfall, no immediate
action to help them, except during famine when the government gives them free food. Under those conditions, my idea was that the loan waiver would help farmers. It’s not a small number, including those who have had loan readjustments; 40 million out of 115 million, a little more than one-third.

Q: You mentioned that people would have hopefully come back to farming, what are the actionable steps, such as insurance that you mentioned, that we could take to help farmers?
A: We should provide support services such as seeds, technical advice, and appropriate mineral and bio-fertilizers, and pest management. Foreign experts who come here may not understand our agriculture very well. They try to influence policy, and it’s a fiasco. One day they want to try Training and Visit (T&V) system of extension, and then other days they recommend other strategies.
Unfortunately, a lot of policy activity won’t help at this point, because we are in grave circumstances. Last season there was no rain, until very late in the season, which damaged the farmers’ crops. And, the water table has gone down deep, causing water prices to increase because the cost of pumping water is very high. The costs are too high, so farmers can’t pay for the water. Subsidies could help.
Suppose that you are a small farmer in Punjab, and you produce 5 tons per hectare. You have two hectares, and accordingly produce ten tons of wheat. One ton goes to feed your family and some of your neighbors, so you have nine tons of wheat to sell. If you sell nine tons, you get 90,000 rupees because each ton is worth 10,000 rupees. Your profit margin is about 2000 rupees per ton, once you take account for water and fertilizer costs, among others. So, for the labour of five to six months by five to six people, you only earn 18,000 rupees. After paying the other workers, the farmer will only net maybe 2,000 or 2,500 rupees per month. Even farmers with irrigated land, they will not earn as much as Class IV government servants, who typically earn 5,000 – 6,000 rupees per month. So, I think there is a grave economic and ecological crisis. If farm economics goes wrong, it is hard for anything else to go right in agriculture.

Q: Moving over to some of the criticisms of this package, many people have claimed that while the package is a significant respite to farmers with formal loans, the vast majority of farmers, those who are really in distress, don’t have access to formal loans. How would you react to this criticism?
A: Number one, you can’t generalize all small farmers. These criticisms are not new, and they get to an underlying challenge. Government policymakers like to create broad and general policies. For example, India has one standard time zone, Indian Standard Time, but we really reside in three different time zones. Generalizations are easy for our policymakers, and this influenced the set-up of the waiver policy and the eligibility criteria. It’s a one size fits all approach to small farmers and their challenges. There are many different types of farmers, farmers working on arid land have different problems than those with irrigation, farmers that work in rain-fed regions face various challenges, and farmers with 5 hectares in unirrigated areas face different challenges than those with one hectare in irrigated areas.

Q: The point about the criteria for loan waiver eligibility, and the need for more variation, has come up several times. What are your thoughts on how the criteria could be improved?
A: With other government agricultural programs, such as the Land Ceiling Act, there are very different criteria for program eligibility. If a farmer works on irrigated land it must be at 10 acres or less, if rain-fed land 25 acres or less, for Rajasthan 50 acres or less [to be eligible for the program]. We already have the kind of parameters we need for land reform. All we need to do is take the same type of approach with the loan waiver program. In one of my recent articles in The Hindu, I suggested that the land size requirements for small farmers that work in arid land should be higher than those farmers with irrigated land.
Policies shouldn’t be designed only to be simple or easy to generalize. Policies should be made to ensure that those targeted, in this case struggling small farmers, have their livelihood security rejuvenated.

Q: When we talk to politicians about the loan waiver, one thing that always comes up is that the policy should be practical and actionable. Would having different criteria for farmers on irrigated and arid land make executing the policy more difficult?
A: Just because a policy is simple does not mean it’s practical. In Parliament, when discussing the loan waiver program, many of the politicians said that the program should be for all small farmers. Ultimately, government can help only to the extent
it can afford.

Q: Many people within the microfinance community fear that the loan waiver may impact the credit culture of our country. What are your thoughts?
A: This is a legitimate fear because some of the people receiving loans do not really need them. Today, I saw that the State Bank of India stopped giving loans for tractors, because people were not repaying these loans. Which farmers are buying these tractors? Not the poor ones the loan waiver program should be targeting. The poorer farmers are not the ones to blame here. In fact, 30% of labourers in agriculture are homeless and many are not formally registered on the land. That is why I am supporting growing movements in Rajasthan and other areas to empower such farmers. For instance, MS Swaminathan Research Foundation (MSSRF) has had workshops with women farmers all over the country because many of their husbands are migrating to the cities looking for work. Many women are left with their children, and try to make a living by farming. They have often no title to land and therefore, rely on moneylenders.

Q: Now that you have brought up informal loans, do you think there would be a way to include moneylenders’ informal loans in the loan waiver program?
A: Moneylenders are an institution that has been around a long time and that provide credit in a relatively holistic manner. Moneylenders may not the sole reason for recent suicides. In some villages I have visited moneylenders charge rates that are too high and they are not good, but the same can be said for some microfinance institutions. On a broader level, our loan system for farmers is very narrowly circumscribed. If farmers want money after receiving an initial loan that is, if they want to renew a loan, it’s very difficult for them. To create a thoughtful credit policy, the Cost and Prices Commission needs to look at our farmers’ consumption and agricultural needs.

Q: You said that in essence, the loan waiver is a good policy. But, 60,000 crores is a lot of money, and you also said that farmers need other types of support, such as technical advice and fertilizer. So, when we look at the efficient allocation of resources, would you allocate 60,000 crores to the loan waiver, or with the criteria you have raised, would you allocate this money differently?
A: It’s not that simple. With the loan waiver, you are reaching 40 million people that own land and are being re-launched into productive agriculture. If each of these farmers can produce half a ton more, we will create 20 millions tons of additional output. Today, 20 million tons of rice may cost more than 20,000 crores in the international market. So, people will find the loan waiver useful. I don’t think it should be the endpoint, but it’s certainly a starting point of getting them back into productive agriculture.

Q: When you look at last loan waiver, which happened around 1990 by the V.P. Singh government, what lessons should we take away for our current situation?
A: There have been a lot of loan waivers, there have been loan bailouts that have damaged the credit system. We need to make the waiver one step in a process. We need to figure out a way to encourage the people receiving loan waivers to work really hard to produce more. There has to be a quid pro obligation. In this instance, I think there should be a minimum of 20 million tons of additional food made. With the current rice price of 677 US dollars per ton; that means 100 million tons of rice would be worth 67.7 billion US dollars, or about 250,000 crores. So, the loan waivers need to be converted back to wealth.

Q: You have mentioned that this should be the first step to support farmers. What should come next?
A: It’s simple, whatever the farmer needs. If a farmer is willing to take out credit, it could be seeds or fertilizer or diesel that they need most. Regardless of what an individual farmer chooses to invest in, it needs to result in production. Otherwise, if the farmer thinks we will once again waive the credit, and therefore the farmer does nothing, we will have more of the same. This loan waiver must be taken as an opportunity to revive agriculture. It should not be an indicator of future loan waivers.