The Downside of Repeated Debt Waivers

The Downside of Repeated Debt Waivers

Debt waivers are supposed to help farmers make agricultural investments, repay future debts and tackle any other situation. But the history of waivers in India tells a different tale.

Credit: PTI

Credit: PTI

India is facing an agrarian crisis. There is no doubt that the majority of the small and marginal farmers are indebted. According to the Reserve Bank of India, the amount of outstanding loans given out for agricultural and allied activities by the regional rural banks has increased from Rs 1.80 billion in 1980-81 to Rs 1329.67 billion in 2015-16. According to the 2009 India Human Development Survey, the average outstanding loan for a household was above Rs 50,000. The most popular and yet most debated public policy response to tackle this problem of spiraling farm debts in India has been debt waiver programs.

The theoretical argument in support of debt waiver policies originated in the macroeconomic context of debt relief programs for low income countries. For instance, Bolivia received on average $614 million in foreign aid per year between 1998 and 2002 towards debt relief. These numbers went up further in recent years. Sachs, in his 1989 work, argues that a very high level of outstanding debt reduces the incentive for the debtor to exert effort to repay, a concept captured by the Debt Lafer Curve. Krugman shows that in such a situation a policy of debt forgiveness could induce the optimal level of effort from the debtor and maximise repayment. A similar logic can be borrowed in a microeconomic setting like the agricultural loan waivers. Farmers who run into huge debts, due to uncertainties associated with agriculture, are less likely to be able to come out of the debt trap without any help from outside. Debt waivers are supposed to help the farmer come out of the unforeseen situation, make agricultural investments and be able to repay future debts. The problem arises though, when we consider the specific history of farm loans waivers in India.

A typical agricultural loan contract in India uses land as collateral, which are freed once the loans are repaid. Loan waivers protect households from confiscation of their land by credit institutions in case of default. Effectively, the practice of repeated loan waivers, announced in the wake of state level elections, have contributed towards shaping an expectation among farmers about government intervention to free up their collateral in case of default. This has led to a loss of credibility in the enforcement of loan contracts between the farmers and the banks. The hope for future loan waivers is likely to have generated incentives among farmers to utilise agricultural loans for unproductive purposes and adversely affect agricultural investments.

While the debate regarding efficacy of loan waivers has gained momentum in recent times, agricultural loan waiver programs have been around for a while in India. In 1990, Prime Minister V.P. Singh announced a waiver of up to Rs 10,000 for agricultural loans per household. It cost the government Rs 100 billion to complete the waiver and it took the banks, involved in the scheme, nine years to recover the funds from the government. In the same year, the then chief minister of Haryana, Devi Lal, announced a Rs 2275 million waiver for both cooperative and commercial bank loans. In 2008, the UPA government announced one of the largest debt waiver schemes in the history of India, the Agricultural Debt Waiver and Debt Relief Scheme (ADWDRS). ADWDRS became the most prominent waiver program, at least partly because of its size – a massive Rs 716 billion. It also served as a precursor to the series of state level waiver schemes that followed. In November 2011, the Samajwadi Party government announced a debt waiver of Rs 17.20 billion for Uttar Pradesh, while the Andhra Pradesh (TDP party) and Telengana (TRS party) governments came up with their own waiver packages of Rs 240 billion and Rs 170 billion respectively in 2014-15. In 2016, the AIDMK party announced its waiver package of Rs 57.8 billion for Tamil Nadu as part of its election manifesto. Despite having the second largest fiscal deficit last year, when the BJP won the elections in UP, the state once again had a debt waiver package ready to be implemented. The BJP’s electoral manifesto had committed to write off loans of small and marginal farmers, which would approximately cost the government Rs 370 billion. The states of Maharashtra, Madhya Pradesh, Punjab, Haryana, Tamil Nadu and Gujarat are also in the pipeline to announce their own loan waiver packages, taking the cumulative loan waiver amount in the year 2016-17 to approximately Rs 3200 billion, equivalent to 2.6% of the country’s GDP.

Despite large sums of money being spent on these programs, little is known about their effectiveness. Are they really helping the farmer increase their productivity and pull them out of the debt trap?

Uttar Pradesh debt waiver scheme

To understand how potential beneficiary households respond to repeated waiver programs, we evaluated the UP Rin Maafi Yojana (UPRMY) announced in recent research (Chakraborty and Gupta 2017). Under UPRMY, a household qualified for a waiver based on the amount of loan borrowed and repaid. A timeline of the roll out of the waiver program can be seen in Figure 1.


Figure 1: Map depicting phased implementation of the UPRMY

Under the UPRMY, approximately Rs 1700 crore was disbursed as debt relief covering approximately 7.3 lakh farmers from 74 districts. The program was rolled in a phased manner over a period of three years from 2012-2015. About 42 districts received the relief package in 2012-13. In 28 districts, the program roll out happened in 2013-14. The remaining four districts received the waiver in 2014-15. Figure 2 tells an interesting story. Irrespective of which district received the waiver in which year, repayment rates fell dramatically right after the announcement of the waiver program, across all districts of UP. The average rate fell from 25%-50% in 2010-11 (pre-announcement) to 10%-25% in 2011-12 (post-announcement).

Consumption and investment behaviour of eligible vs. non-eligible households

We analyse the change in household behavior following the UPRMY using primary data collected in 2015 from 5,270 individuals in 770 households across six districts of UP. The districts were chosen to include regions from different phases of the program roll-out. Auraiya and Kanpur Dehat received the waiver in 2012-13. Agra and Firozabad received the waiver in 2013-14. We also include Lakhimpur, the only district that did not receive the waiver at the time of data collection and Sitapur, which received the waiver in 2012-13 and is adjacent to Lakhimpur. In each district a household qualifies for loan waiver if it had borrowed an agricultural loan of up to Rs 50,000 from the UP Gramin Vikas Bank. Further, the household was required to have repaid at least 10% of the borrowed amount on or before the programme announcement date.

Table 1: Household Behaviour In Response to UPRMY

Variable Received Loan Waiver Not- Received Loan Waiver
Consumption 41479 32728
Productivity 29397 38690
Income 52623 59051

Note: Consumption, is the yearly consumption expenditure in rupees; Income, is the annual income of a household; Productivity refers to the value of total production over farm size.

The average consumption value of households that received the loan waiver is roughly Rs 41,000, much higher than those of households who did not receive the waiver. This is in spite of the fact that the households that did not receive the loan waiver had a higher income and a higher level of agricultural productivity.

We delve deeper in to this apparent evidence of moral hazard using more rigorous statistical techniques. We compare differences in consumption and investment decisions between potentially eligible and not eligible households in districts that received the waiver vis-à-vis the differences between potentially eligible and not eligible households in districts that did not receive the waiver.

Our findings suggest that eligible households in districts that received the waiver had higher consumption expenditure, approximately by Rs 8,000 per year, as compared to non-eligible households. What is of greater concern is that eligible households also tend to spend significantly more on social events such as weddings, family occasions and so on. In addition, we find that eligible households had no significant productivity gain as a result of receiving the debt waiver compared to non-eligible households. Given that households in the same districts face similar agricultural shocks the insignificant productivity difference between eligible and not-eligible groups suggests a failure of the program to achieve its desired goals.

Rethinking policy interventions

Eligibility of households for loan waiver frees them up from debts and builds expectations of future credit availability. Consequently, the need to arrange for debt repayment falls. In other words, our results indicate, repeated debt waiver program have led to willful defaults. Farmers borrow from banks for agricultural investment but do not undertake the investment. Instead they use up the loan for consumption and are unable to repay the debt in the future. These findings, coupled with Figure 2 suggest that blanket waiver schemes lead households to stop repaying debts irrespective of their waiver eligibility status. This could be detrimental for the financial sustainability of this line of policy. It is important to note, however, that our findings do not speak against loan waiver programs altogether. Rather they warn against implementation of loan waiver programs based on simplistic eligibility rules that do not account for the actual needs of the farmers and the agricultural shocks they have faced. The agricultural sector in India is still vastly affected by scanty rainfall, poor irrigation facility and loans from private moneylenders with high rates of interest. A majority of the defaults could be a genuine disability to pay back due any of these reasons. However, a more thorough understanding is required regarding the effectiveness of different interventions. An alternate policy to explore is agricultural insurance which has seen an extremely low take up rate from farmers so far.

Tanika Chakraborty is assistant professor of Economics at the Indian Institute of Management, Calcutta, on leave from Indian Institute of Technology, Kanpur. Aarti Gupta, an angel investor by profession, has a Phd in Economics from IIT Kanpur, with her doctoral thesis on Loan Waivers in India.

Telangana Government GO on Crop Loan Waiver

140813 Loan Waiver GO telangana

The eligible amount for debt waiver would be limited to the amount of loan (together with applicable interest), which is disbursed and outstanding as of 31st of March, 2014 or Rs.1,00,000 per farmer family whichever is lower. The farmer family is defined as head of the family, spouse and dependent children.
The following loans/accounts shall not be eligible under the Crop Loan Waiver Scheme.
a) Advances against pledge or hypothecation of agriculture produce other than standing crop
b) Tied loans
c) Closed crop loan accounts
Short term production loan means a loan given in connection with the raising of crops which is to be repaid within 18 months. It will include working capital loan, for traditional and non-traditional plantation and horticulture.

Implementation Guidelines of the Scheme
a) Preparation of list of farmers with outstanding crop loan dues and arriving at the amount of claim

i) Each lending institution – bank branch – which has disbursed short term crop loans to farmers shall prepare village-wise list of farmers with outstanding crop loan dues as on March 31, 2014 in the prescribed format (Annexure-A).

ii) Each lending institution, shall also prepare a village-wise list of farmers who have outstanding dues as on March 31, 2014 in respect of crop loans taken against gold in the prescribed format (Annexure-B).

iii) The list of farmers in Annexure-A and Annexure-B should be compared by the Bank Branch Manager and a final list of farmers who have outstanding crop loan and limited to a maximum extent of Rs.1.00 lakh should be prepared by the Bank Branch Manager in the format designed in Annexure-C. One copy of Annexure-A, B, C should be sent by the Bank Branch Manager each to LDM and District Collector.

iv) Some of the farmers might have taken crop loan/agriculture gold loan for crops from more than one bank branch of same bank or another bank. Hence, for eliminating the duplication/multiple financing and restricting the benefit of loan waiver of Rs.1.00 lakh per farmer family, a Bankers meeting at Mandal level will be convened by the JMLBC (Joint Mandal Level Bankers Committee) Convener. At the JMLBC meeting all the Banks will come with the lists of eligible farmers prepared in the proforma as in Annexure-A, B & C prescribed by the Government, and compare the list of farmers in Annexure- C with Annexure- C list of other bank branches in the mandal belonging to all the other banks (commercial, rural, cooperative). The mandal Tahsildar will also check all names in Annexure- C of all banks in the mandal and will verify if there are any fake pattadar pass books and also if all loanees have farm land. After this verification any false claims will be deleted. Then the farmer family who have availed loans from more than one bank branch will be identified by the JLMBC members. Their details will be recorded by the JLMBC in Annexure- D. The Co-op. Dept. auditors under the supervision of District Co-op. Audit Officer shall cross verify the A, B, C with D list pertaining to PACs and DCCBs. The DCAO shall allot the auditors to Mandals under his jurisdiction under intimation to the District Collector. A senior officer not below the rank of Deputy Collector and nominated by the District Collector will be the observer for this meeting. The Annexure-D thus prepared in JLMBC will be shared by all bank branches at the mandal level.

v) After comparing and deleting farmer family who have taken loan in more than one bank branch (Comparing Annexure C and D) each bank will prepare Annexure-E. It is to be noted that if a farmer family has multiple accounts but overall outstanding for crop loan is less than Rs.1.00 lakh, then their name will not be deleted. In case outstanding crop loan is more than Rs.1.00 lakh, then the name will be retained in the bank where the farmer family first availed the crop loan or where the outstanding amount is higher, the latter being the first priority. Annexure-E will be the final list of farmers bank branch wise who will be eligible for loan waiver.

vi) Annexure-E will be exhibited village wise and social audit conducted by a team consisting of MPDO, Tahsildar, AR (SDLCO)/Sl.& Branch Manager or his representative. After conduct of social audit and finalization of all objections received the final list of farmers bank branch wise will be prepared in Annexure-E (final). After the social audit and after taking into account the objections of villages, if any, a final village-wise list of eligible farmers along with the amount eligible for waiver shall be prepared Annexure ‘E’ and displayed at all bank branches after due authentication. The final list shall be sent to the LDM and the District Collector in Annexure-E.

vii) A District Level Bankers’ meeting will be convened (DCC) by the LDM and district details of loan waiver bank wise, farmer wise will be recorded and sent to SLBC in Annexure-E. SLBC will intimate Bank wise, Branch wise farmers eligible amounts to be released to the Government in Annexure-E.

b) Claim reimbursement by the Government to the lending institutions
i) The final list shall be consolidated village-wise and district- wise by convening a meeting of the District Level Bankers’ Committee. After consolidating all such lists from the districts, the banks would need to raise a claim with the Government, which would be reimbursed to the banks.

ii) After adjustment of loan waiver amount by the State Government, each branch shall certify the amount of outstanding crop loans waived after duly crediting the amounts in the crop loan accounts of farmers. Before crediting the amount, an undertaking should be taken from the farmer in that he shall repay the amount of waiver if it is found subsequently that he/she has fraudulently obtained the crop loan or is found not eligible for crop loan waiver under the Scheme. A certificate of loan waiver in Annexure ‘F’ shall also be issued by the bank branch to each farmer, whose outstanding loan has been waived. The amount of loan waiver shall be consolidated bank-wise for the entire State.

iii) A meeting of the JMLBC shall be convened within one month of the completion of procedures laid down in i) and ii) above.


After the completion of procedures in i) and ii) above, the auditors of the Cooperation Department shall take up the audit of Primary Agricultural Cooperative Societies to ensure accuracy of the waiver amounts and shall submit the audit report to the Chief Auditor. The books of accounts of every lending institution that has granted crop loan waiver shall be subject to an audit in accordance with the usual procedure prescribed by RBI / NABARD. The audit may be conducted by concurrent auditors, statutory auditors or special auditors.
Obligations of lending institutions

Every lending institution shall be responsible for the correctness and integrity of the list of farmers eligible under the scheme and the particulars of crop loan waiver in respect of each farmer. Every document maintained, every list prepared and ever certificate issued by a lending institution for the purpose of the scheme shall bear the signature of an authorised officer of the lending institution.

Monitoring and Grievance Redressal

There will also be a suitable monitoring and grievance redressal mechanism established at Mandal, District and State levels and every representation has to be disposed off within 30 days. Detailed orders in this regard would be issued separately.

Fresh Lending and agriculture campaign

Since the eligibility for loan waiver is decided based on the outstanding crop loan as on March 31, 2014, along with the interest on it computed up to the date of implementation to be notified by the State Government, and the liability will be taken over by the State Government. All the bankers should commence fresh lending of crop loans immediately. For clarity, it is reiterated that the eligible loan amount as computed by following the prescribed procedure shall be reimbursed irrespective of its renewal subsequent to 31-03-2014.



The Commissioner & Director of Agriculture,
Government of Telangana, Hyderabad.
Copy to:
The Principal Secretary to Chief Minister.
The P.S. to Hon’ble Minister (Agri & A.H.)
The P.S. to Chief Secretary.
The Finance (EAC) Department.
The Accountant General, Telangana, Hyderabad.
The Pay and Accounts Officer, Telangana, Hyderabad.

Memorandum to AP Chief Secretary on Loan Waiver

140622 Chief Secretary Telangana final Download

Rytu Swarajya Vedhika has a submitted a memorandum with the following demands.

  1. As a first measure, the Government must delink the loan waiver proposal from distribution of Kharif loans for the current agricultural season and should immediately take action to disburse crop loans  without delay to all the farmers including Tenant farmers.
  2. While the farming community is in deep crisis due to indebtedness, loan waiver is not a solution to end the crisis. The crisis is still continuing even after the debt waiver and relief extended during 2008.   A comprehensive solution lies in bringing in policy changes related to all aspects of agriculture (Credit, input support, extension and marketing) as well as pursuing the land reforms agenda with renewed vigour to bring about a meaningful change in the agriculture sector to help close to 85% ofsmall and marginal farmersto secure and sustain their livelihoods. . A piecemeal, myopic solution to the problem in the form of loan waivers alone is a grossly inadequate solution to the larger, complex set of problems ailing the farming sector in the State.
  3. Tenant farmers, dalits, tribal and women farmers who received lands under various land distributionschemes do not have access to institutional credit. They are taking loans from private money lenders, input dealers or Microfinance Institutions at a higher interest rate (as high as 60% Rs. 5 per Rs. 100 per month).  These farmers  are in deep crisis and constitute a large chunk of farmers committing suicides. This loan waiver is of no help  to them.
  4. Government should make immediate effort to increase access to institutional credit to real cultivators.  One of the problems often expressed by the bankers in giving crop loans to these farmers is the lack of a guarantee for repayment. The state government should establish a Credit Guarantee Fund for small and marginal farmers which can give collateral security to the tenant farmers.
  5. All the real cultivators who are not covered under institutional credit are to be organised into cooperatives and linked to the institutional credit.  All their high interest private loans can be swapped with low interest bank loans.
  6. Loans of all farmers who have committed suicides since 1997 have to be waived and their private loans be swapped with no interest bank loans.
  7. Government should introduce special budget for agriculture with an allocation of atleast 10% of the total budget.
  8. Government must ensure that the loan waiver does not benefit non-cultivating, absentee land owners who have other major sources of income or livelihood and have taken loans in the name of agriculture. Specific mechanisms must be evolved to identify and eliminate the above categories of landowners from the purview of the loan waiver scheme. Further, steps must be taken to identify the actual cultivators and update the revenue records accordingly. Government must also actively explore mechanisms (e.g. setting up a separate Committee) for evolving a set of criteria to enable eligible farmers benefit from the loan waiver scheme in a meaningful manner.
  9. Government should also take care that the loan waiver does not apply to ineligible loanees through the following measures
    1. Restricting the loan waiver only to crop loans
    2. In case government decides to waive short term and allied sector loans, it should be restricted to small and marginal farmers only (up to 4 ha in rainfed areas, 2 ha in irrigated areas)
    3. Exempting Hyderabad district from the purview of the loan waiver. A thorough enquiry should be conducted and if need be waiver can be extended in the second phase. Pending this, the crop loan waiver up to one lakh for all farmers in the other district should be done immediately.
  10. Government should with stain from any effort to impose additional taxes or issue bonds and transfer the burden on to people or the next government.

Banks may write off Rs 7200 crore debt to microfinance institutions

MUMBAI: Banks that restructured Rs 7,200 crore of debt to microfinance institutions are staring at a possible write off as several of these institutions are finding it difficult to recover loans in Andhra Pradesh.

Lenders had bailed out microfinance institutions (MFIs) such as Spandana Sphoorty Financial, Asmitha Microfin, Share Microfin, Trident Microfin, Future Financial Services and Basix in 2011 after the Andhra Pradesh government passed a law to regulate MFIs.

“MFIs have not been able to recover any loan. The restructuring has failed. They have not been able to recover any money from Andhra Pradesh,” said a senior banker close to the development.

MFIs had sought the Reserve Bank of India’s nod for a second round of restructuring, but the regulator rejected the request. “If banks were to restructure loans of troubled microfinance institutions for the second time, they will not get any benefit in terms of provisioning,” RBI Deputy Governor Anand Sinha had said at a recent banking conference. “We do not stop second restructuring. But what we say is that asset classification benefit will not be available to banks. The RBI does not stand in the way of second time debt restructuring.”

RBI prescribes that if a borrower, who is already into corporate debt restructuring, has to avail of loan recast again, then its banks will have to provide 15% of the recast loan amount as provision. This has increased the trouble for banks and MFIs.

Banks may write off Rs 7200 crore debt to microfinance institutions

“Banks are staring at a possible write off unless the state government changes its stance and conveys the message that it is the duty of every borrower to repay debt. There are about 92 lakh defaulters in Andhra Pradesh, which has affected their credit history,” said Vijay Mahajan, founder and chairman of Basix, a livelihood financial services group.

“The average ticket size of the loan is around Rs 7,000. We had also offered to waive off the interest charged on loan after October 2010. This would mean an interest loss of three years. Borrowers would have to repay only the principle. It is for the government to decide,” he said.

Mahajan said the legislation passed by Andhra Pradesh has several provisions that make it difficult for MFIs to recover their dues.

“It requires MFIs to take government permission for every fresh loan granted. This is cumbersome. We are also not permitted to visit the borrower’s house or work place for collection of loan. We have to meet the borrower at a public place or panchayat office,” Mahajan said, adding that there have been no recoveries in the past two years.

Andhra Pradesh-based MFIs have been facing repayment pressures after the state government in October 2010 passed the Microfinance Act to check alleged coercive recovery practices of these institutions. The Act, apart from other provisions, also mandates MFIs to collect loan payments on a monthly basis as against the earlier practice of weekly collections, which has further hit their collections.

Farm loan waiver fraud hits AP

By Express News Service – HYDERABAD

Published: 06th March 2013 08:55 AM

Last Updated: 06th March 2013 08:55 AM

Andhra Pradesh has its share of the “irregularities” committed in the implementation of the Agricultural Debt Waiver and Debt Relief Scheme (ADWDRS), 2008.

The Comptroller and Auditor General, in his report submitted to Parliament on Tuesday on ADWDRS, found that, among other things, one private Scheduled Commercial Bank (name not mentioned) received reimbursement for loans which were extended to Micro Finance Institutions (MFIs) in five states, including Andhra Pradesh. The amount reimbursed was Rs 164.6 crore (for all the five states).

In AP, the total number of farmers who benefited from the scheme was 77,55,227 and the total loan waiver and relief given to them was Rs 11,353.75 crore. All over India, the total amount waived was Rs 52,000 crore and the number of beneficiaries were 3.45 crore.

This was in violation of guidelines issued by the Ministry of Finance at the time of the implementation of the scheme since it clearly stated that only agricultural loans disbursed directly to farmers were eligible for reimbursement. In 2010, the Ministry explicitly stated that agricultural loans extended to micro finance institutions by banks were not eligible under the scheme for reimbursement from the central government.

The bank, however, made a claim under the ADWDRS for certain borrowers sourced through MFIs under the partnership model in the five states.

Though the bank maintained that the loans were direct in nature, the CAG audit found that dis-aggregated data of the loan accounts sourced through MFIs was not maintained by the bank and hence these loans could not be considered as direct lending to farmers since lump sum credit arrangement facility was given to the MFIs against which the MFIs actually disbursed the loan to borrowers identified by them.

This apart, the CAG found that in AP, a sum of Rs 40.76 lakh went to ineligible beneficiaries (132 accounts) and reimbursement was made for an amount of Rs 26.55 lakh though loans had not been disbursed (96 accounts).

When contacted, state finance minister Anam Ramnarayana Reddy said that the government would initiate action if there were any irregularities in the implementation of the scheme. “The total loan waiver in our state was about Rs 12,000 crore. As regards benefiting the MFIs, we should first know how much our share is in the Rs 164 crore that was paid to the bank towards loans advanced to the MFIs. We are yet go into details,” the finance minister said.

Meanwhile, the CAG report said there was also prima facie evidence of tampering, over writing and alteration of records. The CAG noted “the monitoring of the scheme was also found to be deficient”.

It has recommended immediate corrective measures to take action like recovery of money paid to ineligible beneficiaries and loans extended to MFIs, action against bank official and auditors and filing of FIRs in cases of tampering of records, issue of debt waiver and debt relief certificates to farmers.

No More Juice To Squeeze: Its benefit to farmers was well touted. The reality of the loan waiver is less creditable.

In the early hours of a foggy morning in the sugarcane belt of western Uttar Pradesh, produce-laden bullock carts move about in Rasoolpur village, Hapur district, about 50 km from Delhi. As good a spot as any to gauge the impact of the ambitious loan waiver scheme for farmers announced by the UPA-I in 2008.

At a tea shop pit-stop en route, a group of farmers huddled around a fire provided early intimation of the state of affairs, “In most of the villages, almost 90 per cent of the marginal and small farmers have taken loans, but all are paying back with interest and overdue charges.”

Ram Charan Singh, a 70-year-old farmer from Rasoolpur, worries about his mounting debts. The announcement of the loan waiver scheme had brought a ray of hope, Ram Charan says, but the government and the banks have cheated farmers like him. In 2006, he had taken out a Rs 75,000 loan from Punjab National Bank to buy farming equipment and materials. Unfortunately, he did not get a good sugarcane yield on his four-acre landholding—or  receive remunerative rates from the sugar mill. The burden was compounded by his being laid-up with an asthma condition, and marriages in the family. But without giving him a reason, the bank denied him relief. Finally, Ram Charan was forced to borrow money from relatives to repay the bank loan, which had risen to Rs 1.5 lakh, two times the initial amount.


The announcement of the farm loan waiver and debt relief scheme had brought a ray of hope to the farmers. For many, it has been anything but.

From the same village, Satbir Singh is still receiving summons from the bank for the Rs 2 lakh his father Nau Singh borrowed in 2007 and had been unable to repay before his death last year. Satbir’s father owned less than five acres of land, but was not deemed eligible for the debt relief scheme. After his death, the family land was divided among his four sons. “The only mistake my father made was paying back the first instalment of the debt. This is the basis of exempting us from any benefits of the scheme. I have do bigha zameen (0.5 hectares of land),” says Satbir, 48, who is unable to pay back any portion of his father’s debt, as he has growing children to educate. Last week’s hailstorm further added to his troubles, utterly destroying his tomato and cabbage fields.


There are several similar tales of woe in the village. Too many to recount in this space. So who exactly benefited from the loan waiver and debt relief schemes, the farmers ask the government. Around 80 per cent of the small and marginal farmers in the village have debts, says Karamveer Singh, the 40-year-old unmarried village head. He has faced harassment from the banks as well. In 2009, he paid back Rs 1.70 lakh against the Rs 1 lakh loan he had taken in 2006. “These politicians are responsible for the poor becoming Naxalites,” he says. “They don’t detail the tax relaxations given to the corporates, but send goons to harass the poor to repay debts.”

A visit to the Syndicate Bank branch located on the Kuchesar bypass road is an eye-opener. Reportedly, this branch has disbursed the maximum number of loans in the area. The bank staff is evasive, refusing to share details of the loan waivers. The manager is nowhere in sight. And the loan records? We’re told they are kept at the regional officer’s residence.

By Panini Anand in Hapur

How To Waive Crores Goodbye

How To Waive Crores Goodbye
UPA’s populist trumpcard of 2008—the farm loan waiver—has fallen short of its intended target, as a CAG audit throws up

The Scheme

  • 2008 Union finance minister P. Chidambaram announces farmer debt waiver and relief scheme in budget; PM Manmohan Singh writes to beneficiaries “seeking their support”
  • Rs 52,275 cr Total money that was disbursed to eligible farmers across the nation as part of loan waiver scheme
  • Rs 50,000 The loan limit below which small, marginal farmers with up to five acres (2 hectares) land are eligible for waiver. Farmers with higher loans get partial relief.
  • 3.45 crore Total number of farmers whose financial obligations the state was expected to reduce with the launch of the scheme.

The Scam

  • CAG An audit of 1,00,000 cases in 800 bank branches reveals holes in implementation and monitoring of scheme. Documents tampered with to provide benefits to ineligible farmers. Some eligible beneficiaries got less benefit than due; others got more than due. Some banks wrongly charged farmers for their services. Microfinance institutions also got relief. Large number of farmers did not get loan waiver/debt relief certificate.
  • 8-10 per cent Union finance ministry says one in ten of the intended 3.45 crore eligible farmers, approximately 34.5 lakh, did not get to avail of the loan waiver
  • 7 per cent On top of the 34.5 lakh farmers, another 24 lakh people benefited under the loan waiver scheme by claiming to be victims of financial burden.


“Please stand up and be counted. Are you for the farmer or against the farmer?” Union finance minister P. Chidambaram had famously asked five years ago after unveiling the mammoth Rs 52,275-crore loan waiver scheme for small and marginal farmers to considerable applause and some criticism. There was no doubt in anyone’s mind that this was a smart political gesture on the eve of the 2009 elections. UPA president Sonia Gandhi had called it “revolutionary”; and Prime Minister Manmohan Singh had even written a letter to the intended beneficiaries in June 2008. A year later, the UPA was back in power, and this inclusive gesture to “unclog the lines of credit” and help farmers to get new loans was cited as a key reason.


“The RBI concerns definitely raise alarm, it’s a serious matter. Any irregularities must be examined.”Gurudas Dasgupta, CPI MP

Five years on, and within sight of another general election, an audit report which is being finalised by the Comptroller and Auditor General of India (CAG) has found gaping holes in the implementation of the scheme. A staggering number of farmers eligible for the waiver have not benefited, while ineligible farmers have got loan waivers thanks to tampering, overwriting and inadequate documentation. In some cases, it’s not the farmers who have got the loan waiver, microfinance institutions (MFIs) have taken it in their name. “We have no assurances whether these MFIs in turn wrote off the debts of the farmers,” senior CAG sources told Outlook.

The full magnitude of lapses will be known only after the CAG finalises and places the final report in Parliament during the budget session, starting in the third week of February. But if the draft CAG report submitted to the finance ministry late last year is any indication, the picture will not be pretty. With the opposition parties licking their chops in anticipation, this could be the last thing a scam-tainted UPA needs before the crucial budget session. “If such a well-intentioned programme to provide relief to those who would otherwise be driven to suicide failed to deliver, I would equate it with the rape of the public,” says M.S. Swaminathan, noted agriculture scientist and Rajya Sabha MP.

Apart from a recent report in the English news channel Headlines Today, the loan waiver audit has got scant attention in the media. According to official CAG sources, “The magnitude of the problem can be estimated by the fact that out of around 1 lakh accounts scrutinised in 800 bank branches, there were wrongdoings in as many as 20,000 accounts. It shows there was an absolute lack of monitoring and administration of this scheme.”

Sonia Gandhi hands over a no-dues certificate to a farmer in Loni village, Ahmednagar, 2008

No wonder the draft CAG report has set the cat among the pigeons, leading to a flurry of correspondence (which Outlook has seen) from the finance ministry to the RBI (which was supposed to monitor the implementation of the scheme through scheduled commercial banks) and the state-run NABARD or the National Bank for Agriculture and Rural Development (which was tasked with the overseeing and disbursing of funds to the rural banks and cooperatives).


“It seems to have been more a political announcement than any real attempt to help farmers.”Murli Manohar Joshi, PAC Chairman

Given that the CAG attracted criticism for quantifying the loss to the exchequer in the 2G spectrum case, the constitutional body seems chary of putting forth such a number in the loan waiver audit. A senior official clarifies that it is not possible to quantify such a loss as the number of accounts scrutinised is less than a lakh while the total beneficiaries are over 3.45 crore. “We can only talk about the sample size, not the entire scheme,” the official said. “If a substantial portion of the sample indicates lapses, that itself indicates a serious problem.”

The problem is that the size of the loans waived varies from a few thousand to a few lakh rupees. The loan waiver (which was operational for 30 days till June 30, 2008) had an upper limit of Rs 50,000 and was targeted at small and marginal farmers with up to five acres (2 ha) of land. Farmers with higher loans got partial relief under a debt relief scheme, operational for two years till June 30, 2010. This provided one-time relief of 25 per cent (or a maximum of Rs 20,000) loan write-off, provided the farmer paid the remainder by June 30, 2010.

However, the government has given an indication of the staggering numbers involved. D.K. Mittal, secretary, department of financial services, told Outlook that 8-10 per cent of the eligible people failed to benefit, which works out to around 34.5 lakh farmers. On the other hand, the ineligible farmers who got to avail the loan waiver benefit are estimated to form 6-7 per cent of the 3.45 crore universe, or about 24 lakh people, sharing the loot at the discretion of bank officials, middlemen and politicians. Since the lapses were brought to its notice by the CAG draft report, the finance ministry has initiated some action. “Banks have the capacity to recover the loan waiver given to ineligible people,” says Mittal, who retired on January 31.


“Not just public sector banks, even the pvt sector and cooperatives failed in implementing the scheme.”D.K. Mittal, Secretary, Dept Of Financial Services

Blaming the bank auditors for the lapses, Mittal said the guidelines were very clear. “If the bank auditors have failed, they need to be pulled up for not doing due diligence. It is not just the public sector banks but also the private sector and cooperatives that failed in implementing the scheme properly,” Mittal adds. A senior official of the Bank of Maharashtra revealed that, based on the CAG draft report, the RBI had written to individual banks to notify them of the accounts where discrepancies had been noticed. “We have already recovered dues from four accounts that were brought to our notice,” the official said.

This recovery process is opening up a Pandora’s box. For instance, around 49,000 farmers in the Kolhapur district of Maharashtra have been served notice in the last two months by the Kolhapur Cooperative District Bank for return of loans after nearly five years of being issued certificates of waiver. The notices were issued after several months of the cooperative bank trying to justify the loan waivers and debt relief to NABARD. Thousands of farmers and other beneficiaries under the two schemes across the country are similarly likely to be handed notices for return of loans despite their banks having issued them loan waiver certificates.

The PM interacting with debt-ridden farmers of Koljhari village, Maharashtra

Farm leaders are upset at the “high-handedness” of banks which have initiated the recovery process. They point out that the whole scheme was used by the government to win the 2009 Lok Sabha elections, and in the process provided the financial institutions a good opportunity to clear their bad debts. It also benefited non-farming individuals who had a record of not repaying their debts, while those who went to great effort to meet their loan repayment commitments—even to the extent of taking short-term loans from moneylenders at 5-6 per cent per month interest rates—were put at a disadvantage.


“If a well-intentioned programme as this failed to deliver, I’d equate it with the rape of the public.”M.S. Swaminathan, Agriculture Scientist And Rajya Sabha Member

Raju Shetti, MP and founder of the Maharashtra-based Swabhimani Shetkari Sangathana, admits that banks and cooperatives often lend more than permissible limits to farmers with good repayment record. As for the loan waiver scheme, Shetti alleges that the guidelines left a lot of indebted farmers with a disadvantage, citing the case of farmers who had taken loans from urban cooperative banks with branches in the villages, but who were kept out of the scheme owing to the rules. “It was all a political game, that is why I had filed a complaint with the Election Commission in November 2012. I had also written to the prime minister to help poor farmers but still notices are being served to farmers for loan recovery,” Shetti says. He insists that a large number of farmers in Kolhapur district, who were issued copies of a letter with the prime minister’s signature of loan waiver ahead of the 2009 Lok Sabha elections, are now being asked to repay the loans after five years.

Despite cooperative banks having played an important role in banking in India, the segment has historically been plagued with issues of mismanagement and poor governance. Typically owned by members of prominent landowning families with political connections, directly or indirectly, these banks have often found themselves unable to meet capital adequacy norms and other regulatory requirements. Says Krishan Bir Choudhary, president of the Bharatiya Krishak Samaj, “It is the banks which are at fault…. In Maharashtra particularly, the cooperative banks have resorted to large-scale malpractices to recover and adjust loans of defaulters, even those who were not eligible.”

Audit findings and ministry response

Consider Gajendra Ashtkar, a 30-year-old farmer eking out a living in the Sakhara village of Yavatmal district in Maharashtra’s Vidarbha region. He has been blacklisted by banks. His fault? His father committed suicide in 2010 after the repeated humiliation and mental stress of owing a debt of Rs 2.5 lakh—demonstrating how the loan waiver scheme failed to reach the needy. Today no bank is willing to extend any further loan to this sole breadwinner for the family. “Even the moneylenders are not willing to help us. I talked, begged to all possible officers, but no one listened to us. No one is ready to reconsider our case for loan-waiving,” says a desperate Ashtkar.

RLD’s Ajit Singh, a Jat leader and Union civil aviation minister, wonders aloud why such a major welfare and “life-saving” scheme for the farmers was not implemented properly. He attributes it in part to the fact that the central government schemes are implemented through the state governments sans any monitoring system or authorities to maintain checks and balances and follow up the implementation. “That’s the irony of our times. No one has taken the Swaminathan Commission’s report seriously; not a single discussion on it has taken place. Farmer-related issues are off-stage now,” says the farm leader.

The minister’s lament that nobody cares about farmers is borne out by the CAG findings. It’s ironical that the UPA itself couldn’t guarantee the farmer’s rights for a scheme that it brought to the table, and not too long ago. Swaminathan, for one, is optimistic that the government will initiate action once the final CAG report is placed in Parliament. It would serve civil society well if the banks and the monitoring panel set up to oversee the scheme take a hard relook at their books and systems. Particularly at a time when another mega vote-garnering scheme, the direct cash transfer, is being rolled out.

By Lola Nayar and Panini Anand