Topic– Indian agriculture : Issues
2) Reducing farmer’s vulnerability to negative shocks through focussed financial help is more critical than unconditional loan waivers scheme. Critically analyze.(250 words)
Why this question
Farm loan waivers is the news of the season with multiple editorials having been written around the issue. These articles in particular dissect the issue very well even explaining the scenarios where farm loan waivers might actually work. Hence it provides very good fodder points for a question on farm loan waiver.
Key demand of the question
The question expects us to explain about the recent phenomenon of announcing farm loan waivers and thereafter discuss the pros and cons of it. We need to highlight whether if loan waivers can work in certain situations rather than unconditional loan waivers. Finally we need to provide a fair and balanced view and discuss the way forward.
Critically analyze – When asked to analyze, you have to examine methodically the structure or nature of the topic by separating it into component parts and present them as a whole in a summary. When ‘critically’ is suffixed or prefixed to a directive, all you need to do is look at the good and bad of something and give a fair judgement.
Structure of the answer
Introduction – Highlight the slew of loan waivers resorted to by political class as a quick win for farmers.
- Highlight why such unconditional loan waivers are problematic
- They cause a moral hazard
- Lead to lead to debt overhang (essentially stagnated investments due to any new income being used largely for paying back old debts)
- Lead to vicious cycle of debt that sometimes characterizes farm households in India. Etc
- Analyze what are the situations where a loan waiver might prove beneficial
- monitoring of debt and ensuring appropriate governance mechanisms for new loans or targeted benefits. Although this may involve additional enforcement costs for the government, it will likely be far lower than the huge fiscal burden associated with debt relief schemes.
- Discuss the contour of such a scheme
Conclusion – give your view on unconditional loan waivers and whether directed financial help that reduce farmers vulnerability might help.