Loan waiver may not bear fruit for farmers: Rajan

Raghuram Rajan does not mince words when he says that farm loan waivers may not be the best solution to address farmers’ distress.

The former RBI Governor, while discussing a report brought out by a group of economists on ‘An economic strategy for India’ in the Capital on Friday, said he has also written to the Election Commission about farm loan waivers, hinting that it should be taken off the table.

Preferring to speak like an economist he said, “Certainly, there is a reason to think about farmers’ distress, but the question that flows is whether loan waiver is the only solution. Does it reach the farmers who actually need it?”

He said the issue has been discussed earlier as well, and a debate on fiscal transfers to farmers is required. “Farm loan waivers will create fiscal issues for states,” Rajan stressed.

His comments gather significance as they come in the backdrop of reports that the Narendra Modi government may opt for something similar. In fact, the recent state assembly elections saw the Congress making promises of waiving farm loans.

On the issue of autonomy of institutions, particularly RBI, Rajan preferred to be more subtle in his response, saying, “our report does not neglect the issue. As we grow and become a more developed economy, we have to think about institutions that can help guide our growth -- that certainly emphasises the strength of the institutions and the operational independence under the overall guiding framework.”

“I think what people misunderstand is the operational independence…within a set framework, you have to carry out your mandate. Sometimes people say, ‘no, the government has both the overall mandate plus the specific operational mandate’, but that doesn’t make sense, as then the institution is not doing what the professionals of that institution are supposed to do,” he said.

In fact, the report does talk about enacting a new environmental protection law under which pollution regulation is delegated to a fully independent regulator appointed for a five-year term and removable only by impeachment. The regulatory agency must be funded automatically through a charge of a fraction of industry revenue.

Asked how economists involved in the report collated the data to come up with their outcomes, particularly on the social sector and their take on back series data, economist Karthik Muralidharan said, “All of us who work on the social sector pretty much depend on our own resources for data research. Data has been politicised recently and that is a problem. I can say, for the research we have presented, the data has been well resourced. I can’t speak of administrative data.”

On the issue of the recently released Back Series data, economist Amartya Lahiri said, “It is a bit unusual. Previous data slicing happens, but we do not revisit the growth rate. I will just say that.”

Rajan, summing up the report that has works by Abhijit Banerjee, Pranjul Bhandari, Sajjid Chinoy, Maitreesh Ghatak, Gita Gopinath, Amartya Lahiri, Neelkanth Mishra, Prachi Mishra, Rohini Pande, Eswar Prasad, Karthik Muralidharan, and E. Somanathan, said: “the idea behind this report is constructive criticism. The constructive part here are suggestions to deal with what we think are fundamental problems. The idea is not to point fingers at any particular party or government, it is to identify the problems we face.”

On why now, he said, “The reason why we are presenting it now as political parties prepare their platforms for the elections, is to present a set of inputs from people who are concerned about India.”

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