Peasant surprise

The United Progressive Alliance government's unprecedented move to waive INR 600 billion in debt owed by an estimated 40 million small and marginal farmers is a development that, predictably, has drawn significant flak. From gung-ho neoliberals to leading lights of the communist parties, the centrepiece of Finance Minister P Chidambaram's new budget has seen widespread criticism.

Before dealing with the details of this disapproval, the loan write-off needs to be placed in context. In recent years, along with low agricultural growth, India has been witnessing significant distress in the farm sector. For all the attention attracted by subsidies to this sector – especially for power to run water pumps – there has been no attempt to either ameliorate this distress or address the causes of the overarching calamity. The economic crisis in Indian agriculture has been brought home dramatically in recent years by the growing number of farmer suicides. These deaths are not confined to, as mostly reported, the poorer regions of Andhra Pradesh and Maharashtra, but extend even to Punjab, one of the country's most prosperous states.

Understandably, the clamour for mitigating the acute economic distress in the countryside has been gathering political momentum. In fact, even before the 2008-09 budget was presented, opposition members in Parliament disrupted proceedings on successive days, demanding that the government hasten the provision of meaningful relief to nearly two-score million farming families. In fact, with Manmohan Singh's government certain to announce measures to ameliorate the debt of India's farmers, the opposition parties were jostling to grab public attention so that the credit would be shared.

All of this posturing proves that, across the political spectrum, there was no disagreement on the need for the loan waiver. This was, of course, politically expedient, as well: those dependent on agriculture constitute the country's single largest block of voters. As such, it would be politically unrewarding, if not counterproductive, to publicly oppose springing the rural poor from their debt trap. But it is immaterial whether the loan waiver was based on the hopes of an electoral harvest. In this case, it is the logic of the waiver's effect that calls for critical exploration.

Investment needed
There have been localised measures in the past to free Indian farmers of debt, including during Indira Gandhi's state of Emergency in 1975-77. Unlike previous attempts, however, the UPA's recent move is staggering in its scale, and the fact that it is to be implemented over the course of just a few months. This is notable not only on the Indian level, but perhaps throughout the whole of Southasia as a debt-relief bonanza to the masses.

There has been credible criticism of Chidambaram's bounty that is not based on knee-jerk neoliberalism, though there seems to be an answer to each challenge. First, it is claimed that there is no method shown in the budget for actually raising this INR 600 billion, once the debts are wiped clean. For its part, the government has stated that it will take it upon itself to compensate affected banks, in the form long-term government bonds. The banks, with the treasury bonds in their possession, would be able to write off commensurate amounts that have accumulated as non-performing assets.

A second criticism has been that this relief would actually be of little use to those who have borrowed from local moneylenders. This is true, and by no stretch of logic would it be practical to write off non-institutional loans, if only due to the fact that they are unregulated and provide an ideal opening for the looting of public resources. The government can also argue back that, ultimately, no distress-mitigation measure can extend to every last victim. The third criticism is that the waiver will undermine the 'moral obligation' of repaying loans, which many say ought to be enforced. But the answer to this too is at hand. It would be best to begin such enforcement vis-à-vis members of the business and corporate community – those who seem so articulate on the issue so long as it does not relate to their own borrowings, including from nationalised banks.

The fourth criticism, loudly voiced by the communist parties, deserves particular attention. While the offer of relief is deserved, necessary and welcome, the UPA government has not yet gone the whole way: beyond debt-relief, to service the agricultural sector of India, the government should have used this as an opportunity to invest in agriculture, ensure sustainable livelihood to farmers and promote food security. It is absolutely necessary that the focus should turn to these three aspects, lest the conditions of those farmers freed from indebtedness ultimately becomes akin to the dilemma faced by freed bonded labourers: Where to go, what work to do, how to build a sustainable livelihood?