‘Fresh start’ for Punjab’s farm indebtedness : The Tribune India

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‘Fresh start’ for Punjab’s farm indebtedness

THE growing voices of discontent amongst Punjab’s farmers are not getting quelled though the Congress government has kept its electoral promise of a loan waiver. Given the inherited precariousness in fiscal position, the crop loan waiver scheme is welcome though its shortcomings have been flagged many times.

‘Fresh start’ for Punjab’s farm indebtedness

RESTORING SELF-ESTEEM: Punjab’s law must ensure the distressed borrower is placed back on the economic treadmill



Jaivir Singh, Chairman & Anmol Waraich, Ph.D. Scholar

Jaivir Singh, Chairman & Anmol Waraich, Ph.D. Scholar
Centre for the Study of Law and Governance, JNU

THE growing voices of discontent amongst Punjab’s farmers are not getting quelled though the Congress government has kept its electoral promise of a loan waiver. Given the inherited precariousness in fiscal position, the crop loan waiver scheme is welcome though its shortcomings have been flagged many times.

Working agricultural indebtedness through political measures is costly and myopic. Almost all agricultural experts want farming to undergo a complete overhaul to solve the larger structural issues. But they should also focus on developing alternative institutions which support the farmers in distress. One such alternative is the recourse to law to solve agricultural indebtedness.

The situation of debt overhang among small and marginal farmers is generated by exogenous shocks like weather, prices and sometimes by the diversion of credit to non-farming activity like marriage ceremonies, illnesses etc. When the likelihood of diversion for social expenses is high, a welfare state needs to provide debt relief in the form of moratoria, subsidies, bailouts, and compensation. In Punjab alone, a door to door survey by three universities has recorded 16,600 farmer suicides in the period 2001-2017 primarily because of indebtedness. In a relatively developed state like Punjab, institutional borrowings are usually supplemented with non-institutional sources of finance. The credit market is interlinked with the output market with arhtiyas functioning as a conduit. At present, the state government is waiving off the institutional debt (banks and cooperatives) of farmers. But, there seems no guarantee that this loan waiver will be the panacea.

No will for legal mechanisms

What is most interesting in Punjab’s case is that despite being a forerunner in agricultural development in the country, there has been no will on the part of successive governments to develop legal safeguard mechanisms for vulnerable indebted farmers. In India, agricultural indebtedness is a state subject under entry 30 of list II in the Seventh Schedule. The power to promulgate laws and develop institutions which save the farmers from clutches of indebtedness is vested with the state governments. Yet, there is hardly any talk about rural bankruptcy in India. When times become tough, all we can hear is a cacophony of karj maafi in terms of electoral promises.

A beginning never made

In Punjab, colonial-era laws like The Punjab Relief from Indebtedness Act, 1934, provided for the setting up of Debt Conciliation Boards. They were never set up. After 82 years in 2016, the Akali Government responded to rising pest attacks and farmers’ protests with The Punjab Settlement of Agricultural Indebtedness Act, 2016 to deal with non-institutional debt. It provided for District Debt Settlement Forums in all the 22 districts. Each Forum was supposed to have three members and its Chairman was to be a retired district or sessions judge. One member each was to be from the farming community and creditors who provide agricultural loans.

Fund crunch leads to twist in law

The law was amended in August 2018 and the district forums have been replaced by Divisional Debt Settlement Forums by reducing their number from 22 to 5. The Chairman of the new forum will be the Divisional Commissioner while the two ex-officio members will be from the departments of agriculture and revenue. It is believed that due to salary constraints, the government did not receive many applications from retired judges for the post of Commission Chairman and hence was forced to make these amendments.

The Punjab Government finally notified the provisions of The Punjab Settlement of Agricultural Indebtedness (Amendment) Act, 2018, on October 7, 2018. The new law also strives to regulate the amount of credit that can be advanced by the creditors on per acre basis. How will this Forum fare in future, time will tell?

Learning from the well performing

But the nuances of the provisions of this law and its implementation do not seem promising at the moment. Punjab has again missed a golden opportunity of learning from other jurisdictions where debt relief laws are actually working well.

The most popular example is Kerala’s State Debt Relief Commission set up in 2007 in response to rising farmers’ suicides. It has seven members with a retired High Court judge as the chairman, a cooperative expert, an agricultural expert and four farmer representatives. It deals with both institutional and non-institutional debt and has the power to declare a certain area or crop as distress affected. It has the power to provide moratoria as well as waive a certain percentage of debt in extreme cases.  What makes it superior to Punjab’s Debt Forum is that it is a well-funded, dedicated body with vast powers to solely deal with agricultural indebtedness in the state.

Relying more on the executive

The Punjab law leaves institutional debt at the mercy of a multitude of other laws and perhaps more loan waivers in future. By transferring the power of arbitration to the executive which is already burdened with administrative functions, the provisions of Punjab’s law make the Forum already appear weak. Moreover, there is no farmer representation in the Forum. And by reducing the number of Forums from 22 to 5, the transaction cost of arbitration has also increased — instead of the farmers going to the Forums, the Forum could have held its sitting in different parts of the state depending on the severity of conditions just like the Kerala model. Up until January 2018, the Kerala Debt Relief Commission has successfully disposed of nearly 4.5 lakh applications. It started with a budget of Rs 130 crore and began hearing 2,000 cases a month.

Had the Punjab Government even allotted a fraction of the loan waiver budget to set up a dedicated and funded debt relief forum, the agricultural debt landscape could have at least started changing a bit. ‘Fresh Start’ principle is a motivation for individual bankruptcy laws in modern bankruptcy regimes. It helps in placing the distressed borrower on the economic treadmill again and helps restore his or her social esteem.

The need of the hour was a comprehensive legislation which could have made the Debt Settlement Forum a model of rural bankruptcy in the state and provided a fresh start to the Punjabi farmer. Till then, the wait keeps getting longer for negating Malcolm Darling's century-old words: the Punjab peasant is born in debt, lives in debt and dies in debt.

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