The Hindu Business Line : Replication of SICA on the farm front

The staggering scale of farm loans that are going to be written off is a throwback to the giveaway to industrialists under the Sick Industrial Companies (Special Provisions) Act, 1985 (SICA) that is in its sunset years after having been given the quietus by the Companies (Amendment) Bill 2002, which the Government curiously is reluctant to sanctify into law.

If SICA was guilty of encouraging the sick-company-rich-promoter culture in this country with its mollycoddling of industrial sickness, even if brought upon by cupidity, the largest ever farm loan waiver in the offing spells several ill-consequences for the nation.

Unfavourable consequences

First, those agriculturists who paid back their loans would look positively foolish and would vow never ever to pay back loans.

And those who take loans would stubbornly refuse to pay back, secure in the knowledge that the Government would bail them out sooner than later.

The wholesale write-off scheme furthermore is guilty of unpardonable innocence in assuming rural indebtedness to be arising out of institutional loans, whereas the truth is it arises largely out of usury practised by private moneylenders whom the Government finds difficult to tame.

The rich political dividends the Government expects out of this grand gesture after all may not materialise should the large tribe of hapless borrowers under the clutches of village loan sharks vote with their feet in anger stemming out of their genuine grievances being sidelined.

Bank managers would now be loath to touch farm loans even with a barge pole unless a loan mela is foisted on them.

Loan write-offs are as reprehensible as tax amnesty schemes. If tax amnesty makes mockery of the honest taxpayer, loan write-offs poke fun at those who pay back their loans, either due to dictates of conscience or for want of an escape route.

And both place a crushing burden on government finances.

Law against usury

What ought to have been done was to bring a law against usury and implement it with seriousness. The Andhra Pradesh Government did make a law but seems to have floundered on the rocks of implementation.

To be sure, carrying out a frontal attack on village moneylenders is difficult, but then that is the lot of the government — to use its coercive powers to usher in civility in the society — isn’t it?

The Securitisation Act has undone SICA by empowering banks and financial institutions to assume ownerships of assets and management of the defaulters. The same, however, would not work on the farm front, nor is it warranted.

What is needed is organised farm credit, making available quality seeds on time and provision of farm infrastructure. There is no point bemoaning the fact that agriculture growing as it does at around 2 per cent is the laggard.

(The author is a Delhi-based chartered accountant)

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