Why only farmers get tonsured?

Devinder Sharma

CREDIT policy has two faces. One for the rich, and another for the poor. Take the case of Punjab Agricultural Development Bank which has served legal notice to 12,625 farmers threatening to sell their farmland to recover an outstanding due of Rs 229.80 crore, at a time when the Kolkata Bench of the National Company Law Tribunal has allowed just one defaulting company — Adhunik Metaliks Ltd (AML) — to walk away with 92 per cent ‘haircut’.   

Take another example. Last week, Monnet Ispat & Energy got a ‘haircut’ of 78 per cent; the company had an outstanding debt of Rs 11,014 crore. Under the insolvency proceedings, the lenders will get only Rs 2,457 crore. The remaining amount of Rs 8,557 crore of bad debt will be written off. No wonder, we don’t see any change in the lifestyle of the owners of these defaulting companies. It is only left to the farmers to opt for suicide as the last recourse.  

This is how the banking system works. When it comes to industries, it looks at every opportunity to strike off as much of the defaulting amount as possible. AML defaulted to the tune of Rs 5,370 crore, and under the Insolvency and Bankruptcy Code (IBC) it has been allowed to walk away after a settlement was reached with the UK-based Liberty House Group for Rs 410 crore. In other words, the company gets a write-off, or haircut, for Rs 4,960 crore. It is not even fair to call it a haircut as it is nothing short of a complete head shave! 

Compare this with the Rs 229.80 crore outstanding loan against 12,625 Punjab farmers that Punjab Agricultural Development Bank is trying to recover. It is not even a sizeable fraction of the huge amount written off for just one industrial house. Call it a settlement to affect a resolution plan for the companies declared bankrupt; the economic jargon actually is an attempt to hide what in reality is more than a write-off. By selling off a loss- making unit, the promoter walks out free from what would otherwise be a life-long indebtedness. Almost the entire debt is eventually borne by the taxpayers. This is what Noam Chomsky calls ‘tough love — tough for the poor and love for the rich’.      

Former Chief Economic Adviser Arvind Subramanian had, in fact, said that writing off of corporate loans leads to economic growth. If this is true, why waiving farm loan does not lead to economic growth? After all, both the farmer as well as industry takes loans from the same banks. How then can the write-off of corporate bad loans lead to economic growth whereas farm loan waivers lead to moral hazard? Why should farmers be, therefore, despised for seeking loan waiver? Arundhati Bhattacharya, former chairperson of the State Bank of India, had blamed farm loan waivers for leading to credit indiscipline. Reserve Bank of India Governor Urjit Patel had found farm loan waivers a moral hazard upsetting the national balance sheet. 

Although Punjab Agricultural Development Bank has denied any real intention of putting the land of 12,625 farmers for public auction, saying that the legal notice is just a threat, the fact remains that as many as 71,432 farmers are under the scanner for having defaulted the bank to the tune of Rs 1,363.87 crore.  Sooner or later, all these farmers will receive legal notices if they fail to pay up. Some of them will also land in jail. In Haryana, a farmer who had failed to pay back a loan of Rs 6 lakh taken for laying a pipeline for irrigation was ordered by the district court to pay a fine of Rs 9.83 lakh and undergo a two-year jail term.   

On the other hand, the haircut allowed to AML means the banks will not be able to recover this huge amount. According to media reports, some of the other not-so-high profile companies allowed haircut include: Jyoti Structures (85 per cent); Alok Industries (83 per cent); Amtek Auto (72 per cent); Electrosteel Steels (60 per cent) and Bhushan Steels (37 per cent). Among other outstanding cases listed by the Insolvency and Banking Board of India, Synergies Dooray Automotive Ltd got a haircut of 94. 27 per cent, as a result of which financial companies are able to recover only Rs 54 crore from an outstanding amount of Rs 972.15 crore. 

Corporate bad loans are restructured and an appropriate haircut is allowed to settle the amount. As per a news report, the Stressed Asset Stabilisation Fund, created in 2004, to recover the IDBI bank’s bad loans, for instance, has settled certain cases with haircuts of more than 90 per cent. Haircut basically means the stressed amount that the bank or financial institution will not be able to recover. And moreover, unlike farmers, corporate bigwig, including wilful defaulters, are not sent to prison for defaulting on bank loans. IBC provides a neat protective cover.  

Why can’t a similar haircut be allowed for farmers, big or small? A farmer, too, should be allowed to get out of the debt trap without losing his land. In Punjab, farmers have been denied a loan waiver of Rs 2 lakh if their outstanding loan amount exceeds this limit by even Rs 100. This is not fair. Putting a cap on the maximum amount that can be waived shows how economic justice is being restricted. It is time to learn from Kerala, which brought in 2007 the Kerala State Farmers Debt Relief Commission. As per reports, it has written off on an average 50 to 75 per cent of the outstanding debt of the farmers,  enabling them to offload the baggage of the past and start afresh. Just because they are poor does not mean they should be denied economic freedom. They too need to be freed from the perpetual yoke of indebtedness. Credit policy cannot be based on the principle of different strokes for different people.

Food & Agriculture Policy Analyst