Poll gimmicks bankrupt States and destroy credit culture: JP Narayan

Hyderabad: Why do farm loan waivers keep coming back in Indian politics despite repeated failures?

Loan waivers have become a political compulsion. If a party doesn’t promise them, it fears losing elections. If it promises but fails to implement, it risks defeat again. And even when implemented, leaders still lose. N Chandrababu Naidu, Y S Jagan Mohan Reddy and K Chandrasekhar Rao tried it and each faced setbacks. So, politicians are trapped in a vicious cycle. It’s not about helping farmers; it’s about electoral survival.

When did this practice begin, and what were its early consequences?

The first major loan waiver was in 1989–90 under Chaudhary Devilal in the V P Singh government. At that time, the waiver was around Rs 12,000–15,000 crore nationwide. As the then Managing Director of Andhra Pradesh State Cooperative Bank, I saw the impact firsthand. Recovery rates collapsed — only eight per cent of loans were repaid. That destroyed the credit cycle and left banks in peril. Once the repayment culture breaks, the entire system collapses.

Why do you call loan waivers “disastrous” for farmers?

Because they destroy repayment discipline. Farmers begin to believe they don’t need to repay loans, expecting that the government would waive them, all over again. This dries up credit availability. Only large, well-established farmers can access loans, while small farmers are excluded. What farmers truly need is timely and adequate credit at reasonable interest rates, not waivers. Governments earlier had interest subvention schemes — three per cent concessions for timely repayment, bringing effective rates to 6-7 per cent. That was a healthy trend. Waivers, on the other hand, spread a culture of irresponsibility.

Some argue industries also get loan write-offs. Isn’t this the same?

No, it’s very different. In the industry, limited liability companies face genuine market risks. If they fail, banks recover hypothecated property and adjust accounts prudently. That’s not a blanket waiver. In agriculture, waivers are wholesale political decisions, not market-driven outcomes. They distort incentives and undermine the entire credit system. Comparing the two is misleading.

What are the long-term consequences?

They stagnate agriculture. Farmers remain dependent, investment dries up, and the sector doesn’t become self-sufficient. Telangana, for example, started as India’s richest state but now struggles to pay salaries and pensions. Excessive welfare and waivers have pushed states into debt traps. Eventually, this will cripple the system. Today, Telangana has over Rs 2.1 lakh crore in unpaid bills. Small contractors, vendors and even pensioners are waiting for their dues. This is nothing but a disgraceful outcome of reckless populism.

Are you against all forms of welfare?

Not at all. Welfare is necessary in a democracy. But it must be sustainable and capacity-enhancing. Borrowing money for day-to-day subsidies burdens future generations. Assistance should empower farmers — for example, direct cash transfers or support for agro-based industries like horticulture, pisciculture and energy plantations. But subsidies like free power or excessive urea distort the economy and harm productivity. Free power encourages waste, depletes groundwater, and removes incentives for efficiency. Urea subsidies lead to overuse, damaging soil balance. These are examples of how and where welfare measures have gone wrong.

What about farmers who repay their debts?

It tells them they are fools. Farmers, who default, are rewarded, while honest farmers are penalised. This destroys the psyche of the people. Some even manipulate repayments to qualify for waivers, further eroding discipline in the system. When governments announce waivers of Rs two lakh, farmers rush to pay just enough interest to qualify. This is not healthy economics; it’s vote-bank politics.

Do tenant farmers figure in waivers?

Tenant farmers face difficultiesbecause tenancy laws are regressive. Andhra Pradesh tried to address this with identity cards under the Tenant Farmers Act of 2011, but implementation has been poor. Many tenant farmers remain excluded from waivers and credit, worsening inequality. Registering tenancies is difficult because landlords fear losing control of property under outdated laws. Instead of reforming tenancy laws, governments introduced card systems, which remain half-baked.

How do you see escalation of welfare promises across states?

It’s a race to the bottom. Tamil Nadu in 2006 offered colour TVs. I opposed it, arguing that TVs are not a constitutional responsibility of the government. But DMK won. In 2011, J Jayalalithaa retaliated with even bigger promises. Telangana’s Congress recently offered six guarantees, forcing rivals to promise even more. Karnataka, though fiscally healthier, has also succumbed, offering Rs 44,000 crore in waivers. This is unsustainable. Parties are riding a hungry tiger of populism. Once you start, you can’t stop, because voters demand more each time.

What is your final assessment of farm loan waivers?

They are politically attractive but economically disastrous. They undermine credit culture, distort incentives, push states into debt, and ultimately fail to improve farmers’ lives. Farmers need real support — timely credit, investment in sustainable agriculture, and welfare that enhances capacity, not gimmicks that win votes but destroy the future. If we continue to tread this path, a day will come when the system collapses under its own weight.