urjit r patel : agricultural debt waiver - efficacy and limitations opening remarks by dr urjit r patel, governor of the reserve bank of india, at the seminar on " agricultural debt waiver - efficacy and limitations ", mumbai, 31 august 2017. * * * ladies and gentlemen, on behalf of the reserve bank of india, i warmly welcome you and thank you for accepting our invitation to join us today in this seminar. 1. in the recent period, farm loan waivers have engaged intense attention among the farming community, policy makers, academics, analysts and researchers. on the one hand, there is a gamut of issues that have intensified the anguish of our farmers. in this context, farm loan waivers have brought forward the urgency of designing lasting solutions to the structural malaise that affects indian agriculture. on the other, there are concerns about the macroeconomic and financial implications, how long they will persist in impacting the economy, the possible distortions that they could confront public policies with, and the ultimate incidence of the financial burden. 2. let me, in a modest way, try to eclectically address both sides of the debate. india's agrarian economy is the source of around 15 percent of gdp, 11 per cent of our exports and provides livelihood to about half of india's population. the importance of the sector from a macroeconomic perspective is also reflected in a significant flow of bank credit to finance agricultural and allied activities relative to other sectors of the economy. outstanding bank advances to agriculture and allied activities have risen from about 13 per cent of gdp originating in agriculture and allied activities in 2000 - 01 to around 53 per cent in 2016 - 17 ( chart 1 ). in real terms ( adjusted for inflation measured by the gdp deflator ), the growth of bank credit to agriculture and allied activities accelerated from 2. 6 per cent in the 1990s to 15. 4 per cent during 2000 - 01 to 2016 - 17. 3. much of this credit flow has been propelled by the policy thrust on expanding credit to agriculture, especially through priority sector lending ( psl ) stipulations. public sector banks and private banks are required to lend 18 per cent of annual net bank credit ( anbc ) or credit 1 / 4 bis central bankers'speeches equivalent amounts of off - balance sheet exposures, whichever is higher, to agriculture. under this carve - out, 8 per cent is prescribed for small and marginal farmers. even foreign banks with 20 branches and above have to achieve

possible spillovers that could undermine external viability ( the twin deficit argument ). also, research points to adverse welfare effects because, ultimately, loan waivers involve a transfer of resources from tax payers to borrowers. consumption redistribution effects have also been reported. 10. as you would have noted from these initial remarks, farm loan waivers have stirred up considerable passion and polarised opinions. while in no way detracting from the acute distress that farmers face with every disruption in crop cycles, it is important to recognise that there are externalities that spill over beyond the farm sector. eventually, other economic agents and other parts of the economy get affected. how can these spill overs be minimised? how do we defray the incidence of the burden on tax payers? from a policy perspective, what needs to be done to move away from palliatives in the form of debt relief and into a more fundamental solution that enhances welfare all around? many elements of this optimal approach are well known - crop insurance, infrastructure, irrigation, technology - enabled productivity improvements, and, opening up the farm economy to market forces and open trade. the government ’ s initiative to establish a nation - wide market for agricultural produce, through enam, the pradhan mantri fasal bima yojana, the pradhan mantri krishi sinchai yojana, the paramparagat krishi vikas yojana and the national drive towards financial inclusion for all are important initiatives in this direction. the coming to fruition of these initiatives holds the potential of achieving the mission of doubling farmers ’ income over time. we need to ensure that their benefits percolate down to all the intended recipients. 11. i will refrain from either prejudging or influencing the rich discussions that are expected to occupy your minds during the rest of the day. i am sure that amidst the heat and dust, this seminar will shine light on the multi - faceted discourse on farm loan waivers. so i will stop here and wish you all success in your deliberations. 1 the 2008 scheme waived debt by classes of cultivators whereby small and marginal farmers ( that is, farmers holding up to one to two hectares of land ) received a full waiver of all loans overdue, while other farmers were given a one - time settlement – rebate of 25 per cent against the payment of the balance 75 per cent. 4 / 4 bis central bankers'speeches