India Farm Loan Waiver

I have seen the details of the farm loan waiver package announced by the Finance Minister in his budget speech on 29th February. To put in one sentence the whole idea is a piece of crap. There are four crore small and marginal farmers who are unable to repay their crop loans to the banks.
Why is a waiver bad or why it misses the point?
A complete waiver vitiates the lending climate and does damage to farm and loan discipline. It penalizes borrowers who have honored their loan commitments and creates a moral hazard since farmer-borrowers are likely to assume future dues will also be written off. It creates a great sense of disrespect for fairness and fiscal discipline among farmers. It is well known fact that a lot of these so called farm loans are taken out by people who are only farmers in name, and only a small fraction of all these farm loans that are disbursed reach their rightful recieptants. Since that day we enter school we are all taught how when a loan is made from a back, the right action is to repay the loan in a timely fashion, the action of the government to excuse these loans hits at the very root of economic and financial logic. It is a slap in the face for banks and a green light for people that it is okay to not repay bank loans. It is important to remember here that the money being by the govt. to repay these loans on the behalf of the farmers is none other than tax payer money and the greater society has to bear this burden for a badly thought out election gimmick.
Small farmers face two main challenges: meeting their input needs and dealing with the weather risks to their crops. Addressing these challenges is not on the radar of the government.
Another basic problem farmer’s face is getting a fair price for their produce. Nothing is uttered about this also in this budget.
The announcement by the finance minister seems to have got its definition of small farmer all wrong. Marginal farmers (less than 1 hectare) and small farmers (1 to 2 hectares) is an incorrect classification. It should have taken the irrigated and un-irrigated areas and arid and semi-arid areas into account while classifying farmers. Without this, a large measure of the farmers in distress will remain untouched by the waiver.
The scheme misses the point that majority of the farmers are in the clutches of village money lenders. The scheme doesn’t touch them at all.
The long term solution is to make farming profitable. The way ahead in this direction is – investment in irrigation and roads, allowing farmers to sell outside their traditional areas and provision of information on seeds and agricultural practices.
Redefine small and marginal farmers duly taking into account the nature or type of their farm.
Rein in the village money lender by fixing a cap on the amount of interest that he can charge on the loans given by him.
I guess the moral of the story here is the age old proverb “ give a man a fish and he will eat for a day, but teach the man to fish and he will eat for a lifetime”.