Farm loans may be crop loans or investment loans taken to buy equipment or other materials

essential for carrying out of farming activities. India, where still a major portion of the
economy is agricultural dependent, has been facing a growing crisis of large amount of
outstanding farm loans against the various banks in the country. This has led to a situation of
crisis not only for the farmers of our country but for every person in the country because
anything related to food and its producers concerns us all. It is a known truth that the farming
community is not at all happy by their situation and no farmer of present generation wishes
for his successors to take up farming as an occupation and as per the NSSO’s 59th survey
about 40 percent of them disliked farming and would quit if they can. Increased number of
farmers committing suicide, everyday protests and soaring food crisis evidently show the
untenable nature of problem at hand.

The nature of farm loans is always changing. When all goes well while farming, both farmers
and the banks reap a good harvest. But when there is a poor monsoon or natural calamity, it
often results in a reduced crop production or even a complete crop failure, making the
farmers unable to pay the loans as the produce is sometimes just enough for their own
subsistence and sometimes even that seems difficult. This distress often prompts the Central
or State government to offer relief, by the way of complete or a partial waiver of loans.

The waiver given includes the government taking over the liability of the farmers to repay the
banks. Waivers given are generally of two types- Selective and Non-selective.

Selective loan waivers include only certain types of farm loans taken, categories of famers
included and certain loan sources. For instance- In 2008, crop loans and investment loans
were waivered for marginal and small farmers (those with less than 2 hectares of land
ownership); other farmers were given only a 25 per cent reduction. The recent waiver
promised by the newly elected UP government to the farmers of the state is also a selective
one. The Madras High Court has directed Tamil Nadu to offer a waiver to all farmers in
the state.

Agriculture in India has been facing many deterring factors like fragmented land holding,
depleting water table levels, deteriorating soil quality, rising input costs, low
productivity. In addition to this, erratic monsoon and non-remunerative output prices double
the agony of the farmers. Such factors lead the farmers to borrow money from banks and at
exorbitant interest rates from other private sources. Indebtedness and the inability to pay,
often leads to farmer to commit suicide.
The loan waivers provided by the government provides some relief to the farmers in such
situations, but there are debates about the long-term ineffectiveness of the measure adopted.
Critics demand that the government should instead strive to make agriculture sustainable by
reducing inefficiencies, increasing income, reducing costs and providing protection
through insurance schemes. The waiver of farm loans are at best only a temporary solution
and entail a moral hazard- even those who can afford to pay may not pay, in the expectation
of a waiver. Such waivers offered may also erode credit discipline and may make banks wary
of lending to farmers in the future. It also makes a sharp dent in the finances of the
government that finances the write-off.