Loanacy

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One of the things that I usually do not comment on is the Union Budget. The reason is simple. I know very little about economics and I have mentioned that before. For me the budget is all about special-interests driven fiscal dribbling: tariffs lifted on consumer electronics, an extra cess on cell-phones and exactly the opposite the next year.

In other words, nothing worth commenting on or getting too worked up about.

But then once in a few years, usually right before election time, the government decides to make a grand populist gesture. It gets excellent press, is politically extremely correct, can be spun of as a “crowning achievement” in the coming elections, allows poster painters to put down “savior of the common man” below gigantic cut-outs of leaders, and most importantly serves a vested interest or two. What’s positively evil genius about such gestures is that once you take even a slightly close look at it— you see that it’s blatantly unfair, isn’t that much of a big deal anyways, helps people who don’t need it that much, does not help all those whom it is supposed to and does absolutely nothing to solve the larger problem.

Yes I am talking about Sonia mam’s historic 100% government loan write-off to farmers who own less than 2 hectares and 25% loan write-off for overdue loans for all other farmers (provided they pay back 75% of their loan as negotiated) irrespective of financial condition or location , an amount that will directly cost the exchequer, as originally reported, 60,000 crores.

What the Rath Yatra is to the BJP, the loan write-off is to the Congress. Ever since the infamous loan-melas of decades ago where banks and cooperatives were forced to give out “bad loans” on the basis of non-existent collateral as a means of buying rural votes for the Congress I, nothing thrills the party base more than the word “loan forgiveness”.

Ask our President Pratibha Tai and she will tell you that loan-writeoffs are the greatest thing ever invented. That is after, of course, “shudh desi ghee” and the Nehru-Gandhi family.

With farmer suicides in places like Vidharbha and Andhra Pradesh and with the memories of BJP’s Waterloo “India Shining” campaign, the Congress needed to show its agricultural chops and since the Gandhi topis know of nothing as simple and appealing as government handouts, it was no surprise that loan waivers would be the order of the day.

Though the Congress I is going to run with the number of 60,000 crores the actual amount of subsidy according to the Business Standard is about 38,000 crores with the average hand-out to the lowest rung of farmers (which I presume is defined as only those small farmers that have defaulted on their loans, not all small farmers) being quite a bit less than the average hand-out to the lowest strata in the income tax regime (at least according to the calculations in the above linked article). In other words, its hardly the historic game-altering decision that Sonia-ji would like her rural vote-bank to believe.

What’s of course utterly wrong about the whole “write-off” business is its underlying principle of an universal amnesty. The word “universal” is of critical importance here in more ways than one. There are specific areas in the country, notably Vidharbha and parts of Andhra Pradesh that are suffering from systemic agricultural crises as evidenced by high rates of farmer suicides. A pervasive loan-relief package for these specially distressed areas would definitely have a positive effect as farmers, who have been black-listed by the government as loan defaultees, can again apply for credit and not have to rely on predatory moneylenders.

However, there are those who see a glimmer of hope. Like Gangaram Meshram of Gopalpur in Yavatmal, who owns two hectares. “I borrowed Rs 15,000 from the cooperative bank which will now be waived,” he says, though he adds hastily that he has borrowed double that amount from a moneylender at an exorbitant rate of interest. “Even if it is only Rs 15,000, it’s a big relief for me,” he says.

Similarly, Vandana Anil Shende, 25, a widow from Bharumri village, had taken a loan of Rs 16,000 from the local cooperative bank after she lost her husband. “I’m happy that I don’t have to pay back that loan and can get a fresh loan,” she says. But, her eyes brimming over, she whispers, “If the government had done this a couple of years ago, I would not have lost my husband.”

[Link]

However what the government has done, instead of concentrating on those regions that need special attention, is that it has written off loans universally for all small farmers all across the nation. By doing so it has kept out of the ambit of its munificence all those who have repaid their loans, not because all of them could afford to but because they felt they had to. By rewarding loan defaulters, irrespective of their financial conditions, the government has sent an unmistakable “Tough luck suckers” message to those who made their payments. Such a gesture can only have detrimental effects on recovery for future loans—those who have been penalized for obeying the terms of the loan will not, and should not, make the same mistake again.

Because the loan relief initiative exists purely to appease certain sections and not to solve any of the problems, the way the relief has been structured makes little sense. A big farmer is defined as anyone who owns more than 2 hectares and a big farmer is not liable for a 100% loan waiver. However, from what I understand, in the domain of cotton cultivation where larger farm sizes are de-rigeur, even a farmer who owns 10 hectares is in desperate need of help.

Half an hour after Union Finance Minister P Chidambaram wound up his Budget speech, Durgadas Desapawar of Boriijara village in Vidharba’s Yavatmal district swallowed a large dose of pesticide.

The Finance Minister’s guilt-laced sop of Rs 60,000 crore for India’s farmers meant nothing to Desapawar, overcome by debt and despair. The cotton farmer had borrowed Rs 25,000 from the local cooperative bank. But he had also borrowed Rs 30,000 from private moneylenders because what he got from the bank was not enough to work his nine acres of land. Eventually, he could not repay both amounts because the price he got for his cotton was simply not remunerative enough. When Desapawar learnt that the loan waivers announced by the Finance Minister applied only to farmers with two hectares of land or less, and that he would not be eligible, he took the ultimate step. His family rushed him to the Civil Hospital at Pusad, 45 miles away. The doctors declared him dead on arrival.

Here again, the government has gone for a one-size-fits-all solution by treating the cotton grower in Vidharbha who owns 10 hectares of land at the same level as a grape cultivator with say 30 hectares of land. By not structuring benefits appropriately on the basis of need, a large number of farmers in despair like Durgadas Despawar are being deprived by the powers that be of any kind of remedial assistance.

Needless to say, the government has taken no administrative steps to combat the immediate reason why farmers are committing suicide—the predatory practices of private money lenders for whom subjecting their debtors to the most heinous of interest rates and defaulters the most hideous of humiliation and violence is standard practice. That a local Congress MLA with political protection is one of the biggest loan sharks in the Vidharbha region may not be a totally irrelevant factoid in this context. One of the principal reasons why farmers knowingly walk into the clutches of private moneylenders is that in many cases, farmers are unable to get credit through official channels. That is not simply because all of them have outstanding loan obligations —-in many cases the real reason is that local bank officials are in cahoots with moneylenders and political bosses, with beneficiaries of government loans determined by influence, both political as well as financial.

Will the government do anything about this? We know the answer.

There are of course many things the government might have done if it was really serious about solving the problems of the farmers. A stratified, tailored-to-problem-areas loan relief scheme with no means for any benefits (like the 25% rebate) percolating to prosperous farmers would have been a good start. A fertilizer subsidy scheme that takes the focus away from filling the coffers of the fat cats (50% of government subsidies go straight into the pockets of big fertilizer companies) would have been another good thing to look at. Better and cheaper “crop insurance”, access to better farming technology, creation of better distribution systems for produce —-there are a hundred things that can be and need to be done.

But no.

The Congress government had to go for the cheapest form of titillation possible—the econo-political version of the Hindi movie rain song where the audience thinks its seeing something exciting, the heroine knows its just a padded bra, and the producer is smirking at the gullibility of the audience while counting the box office receipts.

[Apologies for not answering comments in the last posts. As I keep saying, things have been unusually hectic on the work front. Been meaning to write this post for quite some time.]

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53 thoughts on “Loanacy

  1. GB, i have an offer u cant resist!!
    i am really fed up with studies and your job couldnt really be a walk in the park either. so lets both buy up 1.9 hectares of land each, take 3-6 lacs loan and retire. u can blog all day and i can play cricket all day and once in every 4 years, some party will writeoff our loan.

  2. Pingback: On Farm Loan Waivers | DesiPundit

  3. Brilliant post !!…it was very insightful….The loan waiver is merely a means of winning the 10 state elections this year and the national one next year ( thats if it takes place on time )

  4. Furthermore, I think its the State Government’s responsibility to implement this scheme ( or any other scheme of the budget )…Given the lousy track record that the state governments have in executing schemes one should expect absolutely nothing from this loan waiver…

  5. Rationality and logic were never supposed to be a politician’s forte – were they? (And its an irony that two of the best economists we have are now politicians!!)

    This waiver is to be given over a period of 3 years…so if Congress doesn’t get elected next year – hmm, would be interesting to see how much money we throw down the river!

    Chidambaram’s statement of ‘Whosoever are against this waiver are against the farmers’ reminded me eerily of Bush’s ‘You are with us or against us!’ statement – never ever thought Indian Budget would make such headlines!!

  6. As usual I learnt a lot from your post, especially the wonderful analogy of the rain song. You are a very good teacher, it made things crystal clear.

  7. Amazing post, GreatBong

    Probably the first time , I must have read a simple but highly insightful analysis of this issue- much better than things that are either too abstract or too detailed that it goes beyond the understanding of the common man

    Maybe you should run for President after Tai’s tenure comes to an end 😉

  8. its definitely a very debatable issue.
    I do agree that it was a complete election year budget.
    If you were going to ask me rate on a scale of 1 to 10 this loan thing in the budget, I may say 6.
    But if you ask me in YES or NO on whether it should have been done, then my answer will be ‘YES’.
    So, even though there are shades of grey, I can find more white in it!

  9. Now that we see some positive steps taken by Govt., we can’t resist to criticize that too…huh?
    Yes, the scheme is flawed and totally a populist strategy to gain some vote bank. Granted.
    Still, I believe, the scheme will save some lives and I can just live with that, no matter how sinister it might seem.
    May be, we should ask Mr. Palaniappan that we know more about microeconomy than him and he should just go back to his law business and get Jeff Skilling out of prison.

  10. Guess you should have a look at this post. Hits the nail perfectly on its head.

    Remember those days when Janardhan Poojary was some minister at the centre? Those loan melas and stuff? Loan melas used to be held at pandals on the roadside. I wonder how people elect these men who suck Nehru/Gandhi’s dick.

  11. It’s truly incredible how you can come up with such an amazing post despite your own confession that you know very little about economics.

    However, the last paragraph where you draw the rain song analogy takes the cake. This actually sums up the whole situation. 🙂

  12. Hiking up sales tax on pesticides might have been a much more effective way to prevent farmers from commiting suicide. Alas.

  13. GB, what is your opinion on Mayawati’s ad that appeared after the budget (http://mutiny.in/uploads/2008/03/mayawati-ad.png)? She has asked for loan waivers for “Lakhs of unemployed, small and marginal entrepreneurs”. Bloggers are not included in that list, but hope that day will come very soon. There is a forecast that she would be the next PM, only thing remaining is procuring enough loans before that …

  14. Good post…very much required…this lunacy by congress has hurt India repeatedly on every front.

    Their military and law & order ideas are disasters too, just recall panchayati raj, bofors and such endless ridiculous idiocies.

  15. Well said, GB. What’s more disappointing to me was Manmohan Singh calling it a great budget, on the lines of what he presented in 1991. That budget, of course, was more out of necessity than anything else.

    And another shocker was the FM not saying anything about how the loan waiver would would be financed. Needless to say, more taxes–corporate and individual–are in the offing. ‘Sacrifice for the farmers of India’, as he calls it.

  16. You’re not getting it. The current way the waiver has been implemented is the *only* feasible way to help poor farmers. With one stroke of the pen, farmers all over will automatically get the benefit. There are no middlemen (read: corrupt bureaucracy) involved.

    Do you really think the finance minister is not aware of the “moral hazard” created by penalizing farmers that did pay their loan back on time?

    Before criticizing a scheme, you have to ask the question: Well, what is the alternative? Another “scheme” like the 100-day gauranteed work scheme that is ridden with corruption? No, Sir!

    Sure, this scheme is going to have unintended benefits to some, but overall, the finance minister thought it helps more people that the damage it causes.

  17. Government has set a very bad trend now. Farmers often draw loan not for crops but for the marriage and other functions, secondly as you have rightly pointed out, people who have paid the loan will feel cheated.

    The defaulters are rewarded and in future too they will tend to default more. I hate the fact that the income tax I paid will go in rewarding the defaulters.

  18. @GB
    You have proved that you are not just a “funny man” with a gift of writing. A very insightful and yet uncomplicated analysis of a real issue.
    Keep them coming , GB. And keep mixing them up as you do with your customary funny ones

  19. @Vibhash
    Sahi kaha– chunav ka hi khel hai sab. Saath me left ka gathbandhan bhi majboot banega- Communists will obviously welcome this.
    But the real problems are not yet solved. The farmers are still taking loans , many from private loansharks. Within months there will be again spate of suicides- and no imminent elections to save the poor kisaans. What then??????

  20. Well, I am not surprised at Arnab’s argument at all. I have heard this before, especially from some of my more “globalized” (as in free market champion-type) friends and colleagues as well.

    It is rather easy to judge any social scheme on the touchstone of some cost-benefit analysis argument. But let’s take a closer look, shall we?

    The loan waiver will cost the exchequer and banks crores. So what? Is that is more important than creating and implementing a scheme that potentially saves the life of hundreds of farmers? And are we crying about the banks? And what about the fact that these same banks have been raising interest rates on all borrowings for the last few years beyond all reason and then refusing to lower them even when the economy demands so? The same Chidambaram requested the banks to reduce home loan interest rates from the current 12.5% to a more moderate one because globally the interest rates are on a downturn. The banks refused flat out saying that they did not see any reason to do so. This after increasing rates every six months over the last few years so that a loan one took at 7% in 2003 now stands at 12.5%

    Why on earth should I have any sympathy for banks, and that too compared to lives of farmers? Sorry, don’t buy that argument.

    Second, the entire national economy, anti free market subsidy etc. argument? I wish the same white collar workers who argue vehemently against giving relief to a few farmers because it goes against the “free market” policy also have the same argument when it comes to giving long (20 years and more!) tax holidays to SEZs and when it comes to us buying subsidized diesel and petrol. Of course, these arguments seem only to apply when it affects other people, not themselves.

    I actually tend to think, as do many others, that for once the fin min has actually presented a budget where there is very little to cavil. It has a lot of good things. Many farmers get relief, people (like me) save between 20 and 40K (rupees, of course, not dollars, but we are still happy!) per annum in tax, some prices come down, trains are cheaper, alcohol is not dearer. What’s not to like?

    But no. We have to come out and still criticize our man Chidambaram. And why? Because there was no localized solution, only a pan-national one (“utterly wrong”…”universal amnesty”!!! In other words, why on earth did the fin min help more farmers, when he could have helped only a few? This of course presupposes that just because only farmer suicides in Vidharba get publicity, only they are poor and indigent, while farmers of the same ilk over the rest of the country are laughing all the way to the bank. Just because people don’t commit suicide everywhere equally does NOT mean they are comfortable wherever they choose to live. And the fact that one farmer committed suicide after the budget is anecdotal and does not contribute to the argument. I am sure Arnab will also link to stories of some farmers saved by this amnesty…

    Next, I am most amused by the indignant rage against government NOT taking action against money lenders and waiving loans instead. It’s like saying that the government should not be paying compensation to train accident victims, because it is not doing enough to prevent accidents! Or it should not distribute free condoms in red light areas, but do more to curb prostitution instead! We know moneylenders exist, we know they are a scourge, but we also should know that it is not easy to get rid of them. That’s a long term solution and needs more than just political will.

    The questions we need to be asking are: Has the government done good for people by this act? Have people been saved? These are the important question, not subsidies, not economy, and not just distaste for a particular political party. And yes, it might have been done with an eye on the polls, but that in itself does not make is a bad decision.

    As for me, I would have supported this move, whatever be the political party initiating it.

  21. Shan,

    “The loan waiver will cost the exchequer and banks crores. So what? “

    The Govt. is spending my money and therefore I have a say in how my money is spent. I don’t have a problem when my money is spent to build roads because I benefit from using those roads. I don’t have a problem with the Worli –Sea link because my traffic time is cut. I don’t have a problem with investment in education because my children will benefit from that. I don’t have a problem with free health care because , yes you guessed it, I benefit from it. It’s my money, after all. Whether my money can be used in a sweeping gesture of philanthropy, is a decision only I can make, not the Government.

    Do I have a problem with helping the affected Farmers? None at all…I would have liked the Govt. to collect some data first –crop failures, loan-default rates, borrower’s data . Why? Customized solutions are efficient use of my money and are likely to have a more effective impact on whom the Govt. is trying to help. Grandiloquent gestures like this are just irresponsible ‘easy way –outs’ aimed at garnering votes. Anything that has a lasting impact takes effort & energy.

    Also look at this argument in isolation; it’s equally valid whether it is put forward by a white-collared, globalized Indian or a blue-collared worker who’s struggling to make ends meet. It’s valid even when you think that there are other burning issues that demand more attention.

    And Arnab, you haven’t mentioned Micro-Finance (or did you?). Going by Mohammad Yunus’s success with Grameen Bank, Micro-finance holds great promise in the long-term.

  22. @Bharath, Anirban: In order for us to retire for life, we should then take this money and invest in a private rural moneylender and get 50% per annum compound on our investment.

    @Pranav: Thanks

    @Kiran: Yes very Bush that sounds.

    @Aditi: Thanks

    @Harshit: But in order to be anywhere close to the Tai, I need to rob a cooperative bank.

    @Atul: Ok.

    @Dumdum_er_aantel: “Still, I believe, the scheme will save some lives and I can just live with that, no matter how sinister it might seem”

    Since this is on the same note as Shan’s comment, kindly read my response to him.

    @SBK: Hmm

    @dEbOLiN: 🙂

    @S.Pyne: Hmm.

    @Bhopale: Awesome link. There will come a time in the future when Mayawati is PM that we shall look back to the golden days of Chidambaram and Manmohan Singh.

    @Shourideb: Hmm

    @Akhil: Yes just like the country sacrificed so that Tai and her relatives could lead better lives.

    @Vaibhav: I will do it. Make me the PM.

    @Aditya: No I am not getting it. Specially when you make an assertion like *only*.

    @Akshar: I agree.

    @Sid..the Kid: Thanks

    @Vibhash: In some ways, yes.

    @Shan: Phew. Okay here’s my as-brief-as-possible answer.

    Next, I am most amused by the indignant rage against government NOT taking action against money lenders and waiving loans instead. It’s like saying that the government should not be paying compensation to train accident victims, because it is not doing enough to prevent accidents!

    Not a correct analogy. If an analogy can be drawn for my argument it’s this— a government which does not nothing for railway safety should not be lauded for “doing something for passengers” just because it hiked the compensation for the dead from 50,000 to 60,000 Rs. The cause of passengers would be much better served (and not just for those dead but also those injured and hence not getting 50K) if investment was made in repairing the tracks and in general overhauling the safety infrastructure.

    The questions we need to be asking are: Has the government done good for people by this act? Have people been saved? These are the important question,

    Have people been saved? “I am sure Arnab will also link to stories of some farmers saved by this amnesty”. I am sure you may notice that I already had, before you typed in this comment. In case you havent, here it is again.

    “Similarly, Vandana Anil Shende, 25, a widow from Bharumri village, had taken a loan of Rs 16,000 from the local cooperative bank after she lost her husband. “I’m happy that I don’t have to pay back that loan and can get a fresh loan,” she says. But, her eyes brimming over, she whispers, “If the government had done this a couple of years ago, I would not have lost my husband.”

    Now coming back to your main point. Have people benefited? Sure they have. However that should not be the criteria for success of a policy. The criterion should be: given the constraints at hand, have we helped the maximum number of people in need of help? Have we handled the root causes? Could more people have benefited if an alternative plan had been followed?

    Say person X has fever. He gets into a car accident and gets his legs and arms broken. The medic comes, sees his limbs all twisted. He then touches his forehead and sees he has a fever. He gives the guy fever medication, does nothing for his other serious injuries and leaves.

    Now has he done good to the guy? Yes. If the medic had never come, would the guy have been worse off? Yes. Did the medic do all he could have done? No.

    Most importantly, has the overall “wellness” of the person been improved by the medic? No. And why is that so? Because the medic has not prioritized his “treatment areas”.

    I was amused at being called a “free-market champion”. If I was, I would have said that the market was taking care of the farmers (or adjusting itself) and that the government has no role in interfering. I dont think I have said that. All I have said that, given the resources at hand, there are other much more fundamental issues that need to be solved if the government is serious about the plight of peasants.

    I understand you getting pissed off at “home loan interest rates”. However making rural banks and cooperatives “take a hit” for the Congress won’t make things even. On the contrary, considering the fact that private players arent exactly lining up for the rural credit market, the current sources of rural credit need all the support they can get. I do not have sympathy for many govt lending institutions and that’s because of corrupt bank officials who disburse loans “for a consideration”. However some money does reach the right hands and running these rural lending entities into the ground will worsen the situation.

    There are many other points of your comment I wish I could reply to. Alas some other time.

    @Vivek4mjh: Please read above reply.

    @Ravi: Micro-finance–I have heard some not-so-great things about it to. I dont think I know enough about it to comment.

  23. Shan,

    I would gladly reply to the rest of your nonsense if you would kindly explain his,

    ”And what about the fact that these same banks have been raising interest rates on all borrowings for the last few years beyond all reason and then refusing to lower them even when the economy demands so?”

    How does the economy demands so? Interest rates are a function of the market. If the government feels that banking sector does not have enough competition then answer is to encourage competition rather than finance minister making requests…

  24. g.b.:

    if the capitalist usa can do it for mortgages, why should our pyaaraa des be left behind?

    and hey, do you think there will soon be a cap on the number of brahmins in our indian test team (like there is a gora cap on the south africans)?

    – s.b.

  25. @Vivek4mJH:
    Whatever the criticisms, this must have helped some people at least. That’s good enough, right?

    It will help a few farmers? – Yes, You are right and Happy.
    It will help some people? – Yes, the Congress people..The farmers who don’t read blogs will vote for congress expecting more benefits. Even if they don’t get the benefit as yet, still they will vote for congress hoping that they will get more such goodies only from the congress.

    And once congress comes back to power for another 5 years, then the first four years is 100% benefit for the congress, banks, money lenders, criminals and more suicides, nandigrams(CPI’s contribution) etc will follow. At the fifth year, again whatever the criticisms, it will help some people at least. And that’s good enough for you!!

  26. If they wanted to waive farmer loans, then why wasn’t it done in 2005 during the first budget of the UPA government. Why do it in 2008?

  27. @Arnab:

    Since we are comparing analogies…

    “Say person X has fever. He gets into a car accident and gets his legs and arms broken. The medic comes, sees his limbs all twisted. He then touches his forehead and sees he has a fever. He gives the guy fever medication, does nothing for his other serious injuries and leaves.

    Now has he done good to the guy? Yes. If the medic had never come, would the guy have been worse off? Yes. Did the medic do all he could have done? No.”

    Actually, to take this further, the medic has helped to the extent of his specific capabilities at that point in time. Say the patient needs life saving orthopedic surgery. How will this general physician be able to help? He can at least give him a fever medication so that he is ready for surgery later. That is what this waiver has done.

    Has it helped all who could be helped? Obviously not. Could it have been done better. Obviously yes. Was this done with an eye on elections. Self-evidently yes. Was it a wrong thing to do? Emphatically no.

    @Ravi Ivaturi:

    “I would have liked the Govt. to collect some data first –crop failures, loan-default rates, borrower’s data . Why? Customized solutions are efficient use of my money…”

    Agreed, technically. I work in an industry that makes customised solutions for clients. However, the reason it is not so is given in your next paragraph itself – “Anything that has a lasting impact takes effort & energy.” Customised solutions take a lot of time and money. How many governments would take that effort do you think? How much energy and time do we spend gathering data while lives are in balance? Sometimes before expending that effort, one has to take stopgap, drastic measures. Now is the time to take that effort in gathering data and yes, deciding on alternative solutions like microfinance.

    @Rohit:

    “Interest rates are a function of the market.”

    Ah, how obvious. Of course they are a function of the market, but only to a certain extent. If it were totally a function of the market, then rates would come down as fast as they go up, following the market. Unfortunately, rates go up much faster then they come down. That is human manipulation. Remember that all “markets” that you have so much faith in, are subject to human influence, far more than we would like you would believe. Do you have any idea how much the market is influenced by individuals? Evidently not. Ask any one who works in a fund house, and your blinkers might be taken off.

    Don’t waste your time replying to my “nonsense”. Keep worshiping the “market” as some supernatural being that is omnipotent. That certainly makes more sense.

  28. @EMC3:

    “It will help some people? – Yes, the Congress people..The farmers who don’t read blogs will vote for congress expecting more benefits. Even if they don’t get the benefit as yet, still they will vote for congress hoping that they will get more such goodies only from the congress.”

    That clearly seems to be your only real objection against this loan waiver.

  29. @shan
    “How much energy and time do we spend gathering data while lives are in balance?”

    Sir the government had 4 years. Don’t you think it was sufficient time for gathering all the data. No but the government chose not to do it and instead have “stopgap” arrangement of universal amnesty just b4 elections. And do you thing all this data collection would happen now. If you think it will, then my friend you are living in fool’s paradise.

    “That clearly seems to be your only real objection against this loan waiver.”

    Yes this is definitely one of the major objections. I didn’t want to get political on this forum but I have to be. Congress is the party that is responsible for scuttling all the long term effort to improve conditions of the masses and relied on short term measures to garner votes. Right from License quota raj to nationalisation to reservations to this loanacy. Can you believe that even after 2 years of announcement of OBC reservation and its stay by Supreme Court, government still hasn’t yet started collecting data on OBCs in the country. So important thing to consider is not only the effect of this action but also motivation/intention behind it.

  30. uff. .. this is a really very strong post !
    nicely written !!

    but .. the biggest question in my mind is .. Does the government take the views of people like us (and the “majority” of farmers that are NOT benifitting frm the budget) before coming up with this plan ?! ..

    I am sure it(govt) verifies the plan’s efficiency by forming focus groups (with versatilities that are the closest possible match with the current bunch of most tormented victims in the country .. quantitatively & qualitatively) !

    Considering that it, in fact, does do it .. why is it that, despite their serious efforts to prevent it, its the common man(or the victims) who is still the most dissatisfied of the lot !
    ..
    .
    ..
    .

    Of the 20 people that have posted comments & the blog itself .. I see 4-5 different solutions of the problem, drawbacks of the budget & views coming out. Imagine how hard it is for someone, to please every single person in a country of over a billion !!! With such a huge no. of entities, chaos is bound to come ! .. I think we should wait a little bit & see the goods, the budget has to offer. Since no date for the official doom’s day has been announced yet, we still have a lot of time left to draw conclusions !

  31. Chidambaram bought a 60K crore insurance plan for Madamji and i am sure Madamji will reward him well in the next cabinate.

    Funnily BJP has no answer for this Congress master stroke. 🙂

  32. @ all the idealists here who believe the govt didn’t do the most it could – Yaar, even if this loan waiver saves one farmer from commiting suicide, it’s good enough for me.

    It’s all fine commenting from your armchair while surfing the internet from a broadband connection. Try to imagine the life of somebody who’s got a small plot of land from which to earn a living, feed a whole family AND have the tension of repaying a loan WITHOUT being sure whether the rains this year will be good. Imagine the relief this brings to him/her.

    Nobody’s perfect bhai, & neither is our government & it’s schemes. And for all those of you who dream of the day when the GoI comes out with economically-sound; fiscally-perfect; tax-payer satisfying policies ….. you can keep dreaming.

    Just explaining my point of view, not trying to run down anybody. And yes, sometimes, just sometimes, try to be happy for someone other than yourself.

  33. @shan
    I agree that agriculture needs help..so the farmer’s
    but instead of putting a process in place, we have seen examples to instant vote attracting measures…it doesn’t serve the purpose and neither does it address the true problems.
    mostly the real needy farmers goto unauthorized moneylenders to get the loans because banks seem to be out of reach, too much of processes and other hassles…Ok, loan waived off this time. But what about if the problems keep re birthing, which they will, after every 3-4 years. Each time you will give the loan waiver? Each time 60 crore wirtten off? instead of this, FM should have put a process in place to make life easier – be it better infrastructure, improvement in insurance (i don’t know the details but there are some definite improvements possible), minimizing the middlemen/money lender’s effects or whatever – he is in much better position to see and address problems.
    when government in some state , i think AP, provides electricity at dirt cheap prices, it doesn’t address the real problem. Real problem is access to electricity by remote places and its consistent supply…i.e. building an infrastructure. But that doesn’t catch the eyes, cheap electricity does…same logic here….
    One of my rich relatives has a huge farm house(15 hectares or so) and he has got the land registration distributed(sons, wife, brothers) so that each name gets lesser than 2 hectares…he was very happy to get his total loan of 5 lacks expected to be waived off…

  34. @shan
    “the medic has helped to the extent of his specific capabilities at that point in time”
    Does this mean that you think our FM doesn’t have capability to find the long term solution to the problem of poor farmers. Well in that case he should not have been Finance Minister in 1st place.

  35. @Vaibhav:

    “…but instead of putting a process in place, we have seen examples to instant vote attracting measures…it doesn’t serve the purpose and neither does it address the true problems.”

    I agree and in my previous post I have mentioned that sometimes before putting processes in place, which take a lot of time, it is sometimes required to take drastic short term measures. This is one of them. It is also definitely a poll sop. But still that doesn’t necessarily make it a bad sop.

    “One of my rich relatives has a huge farm house(15 hectares or so) and he has got the land registration distributed(sons, wife, brothers) so that each name gets lesser than 2 hectares…he was very happy to get his total loan of 5 lacks expected to be waived off…”

    Easier said than done. One, has he distributed this land before the waiver. If yes, he must be Chidambaram himself or someone very close to him who knew exactly that the FM was going to do. If he is going to do that now, I am pretty sure he will not get the benefit of this exemption. Besides there will always be some people who take undue advantage of the government rules. There will also be people who will not be helped by this e.g. people with barren land below 2 hectares. Bt there will also be a lot of people helped by this measure.

  36. Dear Shan,

    It has been no one’s case that human beings are perfect. From that it follows that people who would participate in markets would be as prone to manipulation as government servants or people like you and me. That is given.

    What is required is faith in processes and not people. So for example, if the interest rates are being manipulated, the government has two courses left to it : a) encourage more competition; the RBI regulations make it hard for foreign banks to open offices or even for private Indian banks to expand. b) Take strong regulatory steps to check manipulation. R.B.I is supposed to do that job.

    (Btw, considering the largest banks are almost all state owned, are you suggesting that government has been manipulating interests?)

    However, this process does not include the finance minister appealing to the banks. Maybe that appeal was in recognition that interest rates were true reflection of demand and supply. No?

    As far as worshipping at the markets are concerned, I would submit it is better than extolling the virtues of the mai baap sarkar.

  37. Shan:
    I haven’t really read all your comments, so I’m just responding to something you said in first one about SEZs and free markets.

    I think that anyone that who has some basic understanding of what exactly a free market is will not support SEZs in principle, and even if they do, at least give some caveats. And they certainly will not support subsidized petrol/diesel in any situation.

    For the most part, taxes and beareaucratic rules/regulations have always stifled entrepreneurship and economic growth. It led to a situation were something just needed to be done to stave of even more massive unemployment. One of the actions taken? The creation of SEZs that were nothing more than a certain geographic area for which certain rules were relaxed. This is what it sounds like to me “The high taxes and other policies we had in place really sucked, but we dont want to fully reform those just now. However, we’ll create SEZs where we relax those rules since we desparately want economic growth to take place at least in some pockets”. This is not really a free market policy. A proper free market would have the same rules for the whole country. Now, SEZs may still be tolerable if only for the reason that if they prosper amidst the ruins, then it might lead to more pro-free market reform for the whole country.

    I wouldn’t exactly call SEZs crony capitalism (since its not a particular individual, business group, or company that benefits but rather a geographic area and domain (e.g. software companies). The special favors for Tata to build a factory in Bengal would be close to crony capitalism, and I was opposed to that as I had said in my comments to that (although I was focussing more on property rights there). I recall that you were in agreement with me there.

    Apparently, govt forcibly taking away farmers’ land at some arbitrary price is not ok with you. But the govt taking away other people’s money, giving it to farmers as loans, and then waving the loan (in effect, forcibly transferring the money from those people to the farmer) is not only ok with you, but meets with your enthusiastic approval.

  38. GB Dada,
    I completely agree with your argument that such populist policies leave a very wrong precedent for the masses… Democracy can easily become lunacracy if you have sufficient number of idiots in-charge! 😀
    In fact, this reminds me of a Pre-Engineering Test that I gave for Engineering College Admissions in Rajasthan. It had three questions in Physics with no correct choices. Fearing negative marking for wrong answers, I [and I’m sure many more examinees] skipped those questions. However, later when the mistakes were found, all those who had attempted those questions [with no correct answer] were rewarded with 12 points, while we were penalized for being correct!
    Needless to say that I empathize with the law-abiding peasants who worked hard to pay back their loans in time and are being punished for that.
    Hail lunacracy!

  39. @Shan: “Actually, to take this further, the medic has helped to the extent of his specific capabilities at that point in time.”

    Actually no. The medic, being trained to handle emergencies, can put a temporary sling or perhaps even a cast (which is not sophisticated orthopaedic work) by taking the accident victim to the medic van. But he does not do so.

    Later he goes to his supervisor (in our case the electorate) who proceeds to ask him “Did you dispense aid?” He says “Yes”. The medic has not lied. He has simply spent the minimum amount of time that is needed for him give the “Yes” answer without being proven to be a liar. Most importantly, he has not solved the problem of the patient who is still,as we speak, writhing in pain.

  40. i will stick my oar in ,wade through very family bloglines like my cat kicks your cats butt ,write my two piece worth of comment and well just be forward for all its worth never mind the big pause in other languishing webblogs.i shall speak my heart.

  41. @ shan
    u r answering to vaibhav thinking about my comment, did u get confused by the names? Or vaibhav copied pasted my comment, u answered it and thn he changed his comment? Or you have some special penchant for him/his name that you will only answer to him no matter who asks the questions? or his name is better than my name? or my name is not visible because of font colors?
    Please clarify….and also tell who is supposed to respond back…me or vaibhav?

  42. One incident to ponder is this. Right after India won the Twenty20 match, the mumbai government gave the team a whopping cash award..not to mention Ajit Agarkar got a flat as well whereas sugarcane farmers were still due to be given the money for the produce they had given to the government.
    Maybe/rather the govt should clear its debts first!

    One more thing that they can do is insurance for the farmers and look at agriculture as an industry

  43. P. Sainath has an interesting take on the loan waiver.
    http://indiatogether.com/2008/mar/psa-waiver.htm

    While we have a big coverage on the cost of this loan waiver to the govt, Sainath informs of thus.

    Is the waiver ‘unprecedented’? Each year, nationalised banks write off thousands of crores of rupees as bad debt. Mostly money owed by small numbers of rich businessmen. And theirs is not a ‘one-time waiver.’ It is a write-off that recurs every year

    Between 2000-04, banks wrote off over Rs. 44,000 crores. Mostly, this favoured a tiny number of wealthy people. One ‘beneficiary’ was a Ketan Parekh group company that saw Rs. 60 crore knocked off. (The Indian Express, May 12, 2005). However, those ‘waivers’ are done quietly. In 2004, last year of the NDA, such write-offs went up by 16 per cent. Such ‘waivers’ have not slowed down since 2004

  44. IMO, the issue should be viewed from 4 angles, in increasing order of importance, (a) Micro-economic, (b) Macro-economic, (c) Political and (d) Moral

    I think all other arguments can be subsumed under these.

    MICRO-ECONOMIC
    —————
    The total burden of Rs 60,000 crores, spread over a population of 100 crore, equates to Rs 600 per citizen.

    Assuming the burden will be passed to the top 10% of the working adult population, it confers a cash outflow of Rs 6,000 per “you & me”.

    Spread over a year, it equals Rs 20 a day. Even people at the lowest decile of this earnings bracket will not be hit hard. Perhaps a mosquito prick (& boy do they hurt), but definitely not a cranium cracking thump.

    MACRO-ECONOMIC
    —————
    It certainly sets a bad example to free market economics, yet how ‘free’ is free market economics? Is Adam Smith’s ‘hand of God’ truly potent enough to ensure a smooth, creaseless honey-coloured economic universe?

    Possibly 5 trillion US$ of dubious loans have been gleefully advanced in USA to people I wouldn’t loan my half-mangled chewing gum to. Of these arguably $500 billion are dud. Rubbish. Garbage. In one word, NINJA (No income, no job, no asset).

    This now triggers off a speculative boom-boom in the US property market, sliding house prices by 100% in 5 years. Dressing these loans under the term “sub-prime” is just trumpery to hide the fact that they are less potent than the stuff sold by itinerant snake-oil salesmen. And these crap investments are then audaciously packaged and sold on by investment banks to other gullible banks, institutions and individual green-horns, both in the USA & abroad.

    Who evaluated these worthless securities? Why credit rating agencies. And who paid these agencies to come up with their ‘objective, independent, trained’ valuation? Surely not the investment banks who are selling these products in the first place!! So no scope for conflict of interest here, missus !!

    And do buying banks pause once to even inhale before plunging in block-head-first in to this opaque & murky jamboree? Do they ask if the value of the underlying securities is anything remotely resembling the probable discounted cash flows from such trash? No. The hallowed and almighty credit raters have ranked them as AAA. So all is well in the land of finance. What unbridled conceit. What boundless smugness. What audacious pride.

    And after the pride cometh the Armageddon.

    I was liquidating my assets (sights on Antepodean zephyrs) when the hurricane struck. I was down Rs 40 lakh on my pre December values. Some very smart and astute day trading, blood-curdling, nerve-racking and diarrhoeaic risk taking have reduced my losses to Rs 8 lakhs yesterday. But that awning deficit still looms my waking state and menaces my nightmares!!

    Compared to this catastrophe unleashed by so called free economics that has nearly wiped off my 8 years of slave labour, the release of loans to starving farmers is not a great deal.

    Free economics is the best system we’ve got for sustained development. Yet free economics can degenerate in to free-for-all economics, or free-to-abuse economics. It is not a way of life and death; it is a tool, nothing else. Justified exceptions (not abuses) to it can be accommodated with ease, without fear of international or domestic financial retribution. China has broken every single economic rule with brazen and carefully intentioned abandon. Yet the financial coffers of capitalism still coo and court it like dribbling suitors on viagra.

    For a country like India, economics should confer the greatest good, to the greatest number of people, for the greatest period of time.

    Chidubabu’s action definitely meets the first 2, but what about the third? Will there now be a rush of people to drown themselves in new loans with the express purpose of defaulting? I think not. These are farmers who have toiled all their lives for meager returns. I’d like to think they will be astute enough, at least in the long run, to prefer sustained development over paltry and temporary gratification.

    Of course the government needs to send out a clear signal that this is a one-off measure to remove a grinding chunk of misery. It will not be repeated, and is not intended to be a carte blanche for free finance. Measures the government can take include :

    (a) Restricting future loans to Rs 20,000 (for e.g) at a time for small plot-holders
    (b) Requiring earlier repayment terms
    (c) Better monitoring procedures of the effectiveness of loan utilization.

    This can be done, especially if it has a commercial benefit. SBI has 100s of thousands of branches dotting the country. Chidambaram’s actions, IMHO at least, do not upset the macro-economic applecart.

    POLITICAL
    ———-
    Yes, the actions are shamelessly political. They fly in the squeaky clean clearasil drenched face of sharp segregation of political steermanship and independent economic stewardship. They expose an even sleazier than normal picture of political machinations by peddling the family silver.

    Yet there may be a political backlash as well. If you drug people once, you can be pretty sure they will clamour for another shot very soon, and if they are met by refusal, they may quiusilingise their tenuous political allegiances in a huff and a hoof.

    While the afterglow of Chidambaram’s largesse will at best warm the memories of the fickle populace that benefited from it, the flames of wrath of aggrieved parties, whether they missed out on the free lunch or whether they have suffered higher taxes to finance it, will burn brightly. This may cause lost votes.

    MORAL
    ———-
    I have heard the unrequited wails of dying farmers for over a decade. I have witnessed their tears disappear in to the heartless sands. While the BJP wallowed in its egregious self-congratulating India Shining trumpery, farmers were committing suicide in hordes in Andhra Pradesh. This is a modern day tragedy of epic proportions. The fact that the pain is not garish enough to grab front page headlines makes the misery even more unbearable.

    WHAT CAN BE MORE TRAGIC THAN OUR COUNTRY-MEN SLITTIGN THEIR WRISTS TO ESCAPE THE SHACKLES OF DEBT? Come on guys’n’gals. These are our flesh and blood, or brothers and sisters. If we do not protect them, who will?

    A more localized solution could have been misconstrued of pampering to farmers in UPA states. It takes a long time to implement, and is open to far more abuse from middlemen (assessing regulators) than a blanket and direct supplier to buyer measure.

    Those who know me, know that the Congress (Con & ‘graash’) party is not exactly high up on my Durga pujo invitation list. Yet even so I believe IMHO that though Chidambaram has certainly done it for the wrong reasons, he has done the right thing.

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