It didn’t hurt when farmers were dying

Bailing out farmers from a distressing situation is considered bad economics. The sooner politicians emerge out of it the better it would be for growth, development and justice

Devinder Sharma Delhi

It didn't hurt when the farmers were dying. Over 200,000 farmers have committed suicide in the past 15 years. Millions continue to suffer in silence. And more than 40 per cent of India's 600 million farmers want to quit agriculture looking for menial jobs in the cities.

The national media kept quiet.

But with the markets crashing, the media is now crying. "Act fast, go big. It is not only about bulls and bears anymore. It's about India.  And it's hurting..." says a lead story in a national daily. It didn't hurt when the farmers were dying. After all, they do not belong to India. They live in Bharat, the countryside, the unwanted India.

There is blood on Dalal Street (India's Wall Street). But all these years we refused to acknowledge that farmers were dying, and agriculture bleeding. 

Farmers are children of a lesser god.

Only a few months back, the day Union Finance Minister P Chidambaram in his budget speech announced the Rs 60,000-crore (one crore = 10 million) loan waiver for the beleaguered farming community, there was an orchestrated outcry: "Where will this money come from?" Television anchors were visibly angry at this ‘supposed windfall' for the farmers, the print media was outraged at this ‘political' (why not economic?) decision just before the ensuing elections, and industry leaders were seen sulking.

Six months later, no one is asking the same question. With the global financial crisis failing to work itself out, the Reserve Bank of India (RBI) is under pressure to intervene. Soon after the Wall Street mayhem, the RBI had pumped in Rs 84,000 crore in the domestic banking system through liquidity facility adjustment. An additional Rs 20,000 crore has been released through a 0.5 per cent reduction in cash reserve ratio (CRR), which was further slashed. It took RBI five years to make the first cut in CRR on Monday, and the next cut comes five days later. This sure is some urgency. 

Sounds technical but let me simplify. Liquidity in layman term means ‘fund availability' - in simple words, making available more cash. All over the industrialised world, governments are stepping in to provide more cash in the hands of private banks, and India is no exception.

Despite Chidambaram saying that the fundamentals are strong, the banks are on a massive borrowing spree. In the first week of October alone, they borrowed Rs 90,075 crore every day from RBI through liquid facility adjustment. In the days to come, the RBI was under pressure to release another Rs 30,000 crore through the CRR, and also to cut repo rate - the rate at which it lends to banks. The repo rate was cut by 1 per cent, and the government is now considering diverting Rs 1.71 lakh crore via MSS (Market Stabilising Scheme) bonds to ease liquidity crisis with banks. And thanks to the loan waiver, the banks received another Rs 25,000-crore as part reimbursement.

Isn't it a fact that the Rs 60,000 crore loan waiver (later enhanced to Rs 71,000-crore) was actually a relief to the banks?

What seemed to be a ‘political' decision in the name of pulling out the indebted farmers was actually meant to sustain the health of the banking system. If the government had not provided the loan waiver, banks would have been in terrible liquidity crisis. With farmers unable to repay, these banks would have been saddled with massive non-performing assets (or a shortfall in liquidity), or non-availability of Rs 71,000-crore in cash.