By Our Correspondent
BHUBANESWAR: Odisha Chief Minister Mohan Charan Majhi should consider targeted, partial relief measures for genuinely distressed farmers affected by erratic rainfall, floods, unseasonal rains, and crop damage, but a broad loan waiver (even partial) is not the most effective or sustainable long-term solution. This is a genuine humanitarian and economic concern given Odisha’s vulnerability to climate variability, but evidence from India shows better alternatives exist.
Odisha’s agriculture faces repeated shocks: Unseasonal rains and floods: Events in late 2024 -25 damaged crops over ~30,000+ hectares, affecting lakhs of farmers. Pre-monsoon hail/unseasonal rains and variable monsoon patterns (deficits in key paddy districts like Bargarh, Kalahandi) continue to cause 15-30% yield losses in major areas.
Small and marginal farmers (vast majority, often <2 ha holdings) are hit hardest, with high dependence on rainfed farming.This exacerbates indebtedness, distress, and migration, especially for women farmers and tribal communities in regions like Koraput.
The state has responded with schemes like:KALIA (Krushak Assistance for Livelihood and Income Augmentation): Direct income support to small/marginal farmers, sharecroppers, and landless laborers (covers ~92% of cultivators). It provides cultivation/livelihood support and has shown some stabilization in production.
PMFBY (crop insurance): Claims paid in crores for losses. Interest subvention/zero-interest crop loans (up to certain limits), PM-KISAN income support, and disaster compensation assessments.These are more targeted than full waivers
Arguments For Partial/Tariffed Loan Relief
Humanitarian angle: Crop failure from uncontrollable weather leaves farmers unable to repay, risking suicides, migration, and deepened poverty. Partial waivers (e.g., for small loans or verified disaster-affected cases) can provide immediate breathing room.
Political precedents: Many states (and past promises in Odisha) have used waivers. It can encourage continued farming and formal credit use over moneylenders.
Targeted version: Limit to small/marginal farmers in affected districts, verified via crop cutting experiments or satellite data, and link to insurance claims. This minimizes leakage.
Strong Arguments Against Broad Waivers
Moral hazard and credit culture: Repeated waivers discourage timely repayment, leading to “debt overhang” expectations. Banks become cautious in lending to farmers, hurting future credit access. Studies show this effect.
Fiscal burden: Waivers are expensive (hundreds to thousands of crores). They often lead to higher revenue deficits, cuts in capital expenditure (e.g., irrigation, infrastructure — critical for Odisha’s climate resilience), or increased borrowing. This crowds out long-term investments.
Poor targeting and limited impact: Benefits often go to larger farmers or those who can access institutional credit (only a subset of farmers). They treat symptoms (debt) but not root causes: low productivity, small holdings, poor irrigation, market access, and climate risks. Productivity rarely improves post-waiver.
Opportunity cost: Money spent on waivers could fund better insurance, resilient seeds, drip irrigation, warehouses, or diversification (horticulture, livestock). Evidence from national evaluations and states like Maharashtra, Punjab, etc., shows waivers are politically popular short-term fixes but economically suboptimal.Better Humanitarian and Sustainable Approaches
The government should prioritize:
Strengthen and speed up crop insurance (PMFBY): Improve awareness, timely claims settlement, and coverage for tenants/sharecroppers. Make it more effective against climate events.
Expand KALIA-like direct support: Scale income transfers, input subsidies, and livelihood options for the most vulnerable.
Climate resilience investments: More irrigation (check dams, micro-irrigation), weather-resistant varieties, early warning systems, and crop contingency plans. Unseasonal rains are now a declared state-specific disaster.
Targeted one-time relief: For verified 2025-26 losses — e.g., interest waivers, fresh zero-interest loans, or partial principal relief in worst-hit blocks via calamity funds, combined with compensation.
Long-term structural fixes: Land consolidation support, skill training/alternate income, better markets, and value addition to reduce monsoon dependence.
Public-private collaboration: Involve banks, NABARD, and insurers for restructuring viable loans rather than blanket waivers.
Partial, well-targeted relief for farmers in acute distress due to weather is justifiable on humanitarian grounds and aligns with Odisha’s existing welfare approach. However, a general agricultural loan waiver risks repeating past mistakes without addressing vulnerability. Focus on prevention, insurance, and productivity will yield better, lasting outcomes for farmers and the state’s economy. The government can assess district-level damage reports and announce calibrated measures in the budget or via special packages, balancing compassion with fiscal prudence.
Yes, RBI rules do impose restrictions and practical hurdles on loan waivers, particularly for large-scale or blanket schemes, though they do not outright prohibit them. RBI discourages frequent waivers because they undermine credit discipline, but states retain the fiscal right to announce them (especially for cooperative banks and RRBs). Recent guidelines make implementation stricter and faster.
Key RBI Positions and Rules
No blanket ban: States (like Odisha) can announce agricultural loan waivers as a policy decision. RBI does not stop governments from using their budgets for this. However, RBI has repeatedly highlighted negative impacts: weakened repayment culture, higher future NPAs, reduced fresh lending to farmers, and fiscal strain.
2024-25 Guidelines on Government Debt Relief Schemes (DRS): A key December 31, 2024 RBI circular (effective around late 2024/early 2025) provides a structured framework for state government-backed debt relief/waiver schemes.
It requires:Regulated entities (banks, including cooperatives) to have board-approved policies.Clear borrower eligibility and communication (including credit score impacts).
Governments to settle dues to banks/cooperatives within tight timelines — typically 45-60 days from scheme rollout.
Impact on cooperatives (relevant for many small farmers in Odisha): Previously, states often paid in installments over years. New norms demand quicker, lump-sum settlement, creating cash flow challenges for state budgets. This was cited as a major hurdle in Tamil Nadu’s recent waiver discussions.
Accounting and Prudential Aspects
When a waiver happens, banks must follow RBI’s income recognition, asset classification, and provisioning (IRACP) norms. Waived amounts are typically transferred to a receivable-from-government account and treated accordingly (often not immediately as loss if government commitment is clear).Banks may need to make provisions until government payment is received.Write-offs (technical or otherwise) follow separate RBI frameworks and do not automatically waive borrower liability without government backing.
Implications for Odisha
Partial/targeted waiver is feasible: For verified distress cases (e.g., due to floods/unseasonal rains in specific districts), a limited scheme focused on small/marginal farmers is easier to implement. Link it to calamity relief, crop insurance claims, and KALIA support.
Challenges: A broad partial waiver across many farmers would require Odisha to mobilize funds quickly (within ~45-60 days for co-op banks) and could strain finances, potentially affecting other agriculture investments like irrigation.
Odisha already uses direct support schemes (KALIA) and insurance, which align better with RBI’s preference for sustainable measures over repeated waivers.
Odisha can proceed with a well-designed, targeted partial relief (e.g., interest waiver or capped principal relief for disaster-affected small farmers), but it must comply with the DRS framework for smooth bank participation. Prioritizing faster insurance payouts, fresh credit lines, and resilience-building (irrigation, resilient seeds) is preferable long-term, as endorsed by RBI analyses.
