Think beyond loan waivers

Recently a few States like Uttar Pradesh, Maharashtra, Punjab and Karnataka have responded to farm distress by rolling out farm loan waiver schemes as a measure of immediate relief to those farmers who qualify certain criteria.

  • The ultimate goal of farm loan waiver is to lessen the debt burden of distressed and vulnerable farmers and help them qualify for fresh loans. The success of the loan waiver lies on the extent to which the benefits reach the needy farmers.

Limitations of Loan Waivers:

  • First, it covers only a tiny fraction of farmers.

  • Second, it provides only a partial relief to the indebted farmers as about half of the institutional borrowing of a cultivator is for non-farm purposes.

  • Third, in many cases, one household has multiple loans either from different sources or in the name of different family members, which entitles it to multiple loan waiving.

  • Fourth, loan waiving excludes agricultural labourers who are even weaker than cultivators in bearing the consequences of economic distress.

  • Fifth, it severely erodes the credit culture, with dire long-run consequences to the banking business.

  • Sixth, the scheme is prone to serious exclusion and inclusion errors, as evidenced by the Comptroller and Auditor General’s (CAG) findings in the Agricultural Debt Waiver and Debt Relief Scheme, 2008.

  • According to the CAG report, 13.46% of the accounts which were actually eligible for the benefits under the scheme were not considered by the lending institutes while preparing the list of eligible farmers. 

  • Beside these errors in implementation, the loan waiver as a concept excludes most of the farm households in dire need of relief and includes some who do not deserve such relief on economic grounds.:

Effective Ways:

  • For providing immediate relief to the needy farmers, a more inclusive alternative approach is to identify the vulnerable farmers’ based on certain criteria and give an equal amount as financial relief to the vulnerable and distressed families.

  • The sustainable solution to indebtedness and agrarian distress is to raise income from agricultural activities and enhance access to non-farm sources of income. 

  • Improved technology, expansion of irrigation coverage, and crop diversification towards high-value crops are appropriate measures for raising productivity and farmers’ income.

  • Another major source of increase in farmers’ income is remunerative prices for farm produce. This requires removal of old regulations and restrictions on agriculture to enable creation of a liberalised environment for investment, trading and marketing. 

  • Agrarian distress and farmers’ income will be addressed much better if States undertake and sincerely implement long-pending reforms in the agriculture sector with urgency.


  • It appears that loan waiving can provide a short-term relief to a limited section of farmers; it has a meagre chance of bringing farmers out of the vicious cycle of indebtedness. There is no concrete evidence on reduction in agrarian distress following the first spell of all-India farm loan waiver in 2008. In the longer run, strengthening the repayment capacity of the farmers by improving and stabilising their income is the only way to keep them out of distress.


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