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India's Loan Waiver Culture: Is it Bad Economics? |
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ABSTRACT |
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The case discusses the culture of debt waiver and relief in India, its history, and implications. In April 2017, the government of Uttar Pradesh, one of India’s highly indebted states, waived huge amounts of farmer loans. Following this, farmers in other states started demanding similar waivers and some states experienced protests and violence. The Indian agriculture sector with its complete dependency on the monsoons, poor and outdated technologies, and negligible development, was facing a tough time. Farmers in parts of the country were burdened by heavy loans which they could not repay. As a result, there were many cases of farmer suicides. While some state governments tried to help the farmers with loan waiver schemes, others took it as an opportunity to achieve electoral gains. Bankers and economists did not appreciate the culture of loan waivers, which, according to them, would create more willful defaulters, disturb the credit discipline of the banking system, and impact the economy in the medium and long term.
Even after launching debt relief and waiver schemes, the problems of the poor farmers persisted. The root causes of the weakening agricultural sector remained unaddressed. Though the central and state governments took several initiatives to deal with the farmers’ problems and to improve the agriculture sector of the country, it remained to be seen how well these polices would be implemented and how effectively they would solve the unaddressed issues of Indian agriculture.
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Issues |
| The case is structured to achieve the following teaching objectives: |
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- Trace the development of the loan waiver practice in India and analyze its links with the economic, social, and political factors prevailing in the country during different periods.
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- Analyze the various motives behind the waiving of different kinds of loans and identify the factors which led to different political parties in India waiving huge amounts of loans.
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- Find alternatives available to the central and state governments for relieving farmers’ burden and study the impact of farm loan waivers on the Indian economy.
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- Compare and study the different debt relief schemes of India and other countries.
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Keywords |
| Farm Loan Waiver,Agricultural Debt Waiver and Debt Relief Scheme,Narendra Modi,RBI,Uttar Pradesh,Maharashtra,Banks,Credit Discipline,NPA,Loan Defaulter,Agriculture,Small and marginal farmers |
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