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A Cabinet subcommittee has
proposed a waiver of loans without clear parameters on who qualifies or finding
the root cause
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Rural indebtedness is a major
issue in India causing large-scale disaffection and leading to farmer suicides
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As in Tamil Nadu, politicians
use this as an excuse to hand out lots of money but without fixing the real
issue implementation.
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A Cabinet Subcommittee has recommended that the Government waive loans of
farmers and individuals who had borrowed money from the Punjab Backward Classes
Finance Corporation and the Punjab Scheduled Castes Finance Corporation. The
panel headed by the Rural Development Minister Lal Singh which includes the
Cabinet Secretary and other senior bureaucrats identified farm laborers and
poor people from backward classes as those who would be eligible for this
scheme. The ostensible reasoning of the panel is that these people are unable
to pay back loans although the Punjab Pradesh Congress Committee has been
lobbying the Government for such largesse.
While the panel is still working on the actual cost of this proposal, loans on
paper amount to Rs. 2085 crores (USD 453 million) apart from an accrued
interest amount of Rs. 1268 (USD 275 million). Besides the loans from banks and
Government institutions, rural debt from private money lenders is valued at Rs.
12,000 crores (USD 2.608 billion). Apparently, the Government is also a taking
moneylenders and commission agents “into confidence” before taking a final
decision.
Part of the process of taking the loan sharks “into confidence” includes
understanding interest rates being charged, transparency in lending, methods of
repayment, etc. The Punjab Finance Corporation had earlier bought off loans
from these loan sharks but those loans are being forgiven. Singh says that the
Government will formulate a new law but in consultation with the moneylenders.
Rural indebtedness is a major source of financing, poverty, suicide,
disenfranchisement, and enslavement in India. Farmers and rural itinerant labor
often borrow money for non-productive or non-business purposes such as death,
marriage, celebration, etc. Since banks and Government institutions do not lend
money for such purposes, they borrow money from loan sharks at exorbitant rates
that is not sustainable. Often they mortgage whatever jewelry and property that
they may own. Understanding the incapacity of the farmers, loans sharks
knowingly take the risk to advance moneys only to covet their property later
on.
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In extreme cases, loan sharks illegally enslave entire generations and gain
access to the family for free labor and sex. Such violent abuse creates
disenfranchisement of populations and spark retaliatory attacks on these
abusers who are often politically connected or politicians themselves. If the
disaffected population is unable to extract revenge, they join underground
violent groups such as Naxals and perpetrate the same violence as they
experienced on other poor farmers. The abusers themselves do not file or pay
taxes for the large interests that they earn.
Indiscriminate largesse to farmers or the poor will not solve anything. In
fact, it will only make matters worse. It will encourage others to take loans
with impunity and expect the Government to bail them out every time. A better
plan is to identify individuals who had lost money from natural disasters such
as drought, floods, etc. and find ways by which they can pay back the money
without interest. Furthermore, the Government should regulate rural money
lending by fixing interest rates, requiring registration of property, banning
arbitrary attachment of property to loans, and controlling the liquidation of
assets at fair market value to pay off debts. Most importantly, the Government
should create awareness of the rural population on dangers of indebtedness and
the actual cost of such loans.
In recent elections in
Tamil Nadu,
the Dravida Munnetra Kazhagam (DMK)
promised such largesse to gain votes. While it did win the elections to form
the Government, the promised largesse did not get it large number of votes and
instead won because of a vote split in the opposition. The Federal Government
had to
finance such a bailout
making the
deficit situation worse that what it
already is.
The current proposal does not seem to have any process to identify deserving
candidates or measures to control such developments in the future but looks
like political largesse aimed to attract votes in the next election in
Punjab.
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