The Indian Government has pledged to forgive about £7.6bn in agricultural loans. Presenting the Union Budget 2008-09 in the Lok Sabha, finance minister Palaniappan Chidambaram announced a scheme of debt waiver and debt relief for farmers, a "one-off" rescue package  brought about by "stories of great distress",  entitling them to get fresh loans from the banks.

The object was to try to stem the rise in suicides amongst Indian farmers unable to pay their loans of a few hundred pounds.  Figures show that more than 166,000 farmers have killed themselves since 1997 – a death almost every half an hour.  The farm sector is a key part of the economy, employing two-thirds of India’s 1.1 billion population.

The government proposes to waive all farm loans disbursed by banks and cooperatives up to 31 March 2007 to small and marginal farmers. The total value of overdue loan being waived is estimated at Rs50,000 crore and is likely to benefit three crore small and marginal farmers.

Marginal farmers is defined under the scheme as those holding up to one hectare of land, while small farmers are those who have 1-2 hectare under their possession.

The government also announced a one time settlement (OTS) scheme for other farmers, under which they would get a rebate of 25%, if they pay the balance 75% of their outstanding loan. The OTS relief on the overdue loans is expected to cost the exchequer Rs10,000 crore.  If small farmers have borrowed from money lenders they will not get relief as it is waived only in the case  of a bank loan.

All agricultural loans disbursed by the scheduled commercial banks, regional rural banks and cooperative credit institutions up to 31 March 2007 and overdue as on 31 December 2007 will be covered under the scheme.

The implementation of the debt waiver and debt relief scheme will be completed by 30 June 2008.  About three crore  (10 million) small and marginal farmers are likely to benefit  from the debt waiver, while another one crore farmers are estimated to get relief under the scheme of one-time settlement.

However a farmer’s leader in Nagpur said the move was of no use to the six suicide-prone districts of Vidarbha due to the two-hectare landing cap. In the distress areas, the government should not have put a cap on the landholding. The cotton-growing areas in Vidarbha are rain-fed and people have larger land holdings of up to six or seven acres (one acre = 0.405 hectare) on an average..  The region has witnessed the maximum number of suicides by debt-ridden farmers in the last few years.

Three factors have made the loan waiver quite useless for around 25 lakh (an Indian unit  of measure  one lakh is equal to a hundred thousand)  farmers in Vidarbha. Firstly close to 60% of farmers  have a land holding of 3 to 5 hectares. Secondly division of land and property has not happened in the majority of households in Vidarbha, which means the head of the family continues to be the sole owner of the land. The farmer’s sons could be tilling the land, but their names do not figure on 7/12 extracts. Thirdly almost all of Vidarbha accounts for dry-land farming, which effectively reduces the loan drawing capacity of the farmers.

Farm activist Vijay Jawandhia said a loan waiver up to Rs 50,000 rather than up to two-hectare land holding would have been more appropriate.

"The two-hectare cap would mostly benefit the sugarcane and grape cultivators in western and southern Maharashtra who have smaller land holdings but large-income-yielding agriculture because of the irrigation facility available there,"

Even so, the policy does have some benefits—suicides will drop for the moment but only for the moment. The cause of the suicides—the need for loans for the maintenance of enterprises that are not economically viable in the changing economic landscape of India—is postponed. The solution, throwing money at some of the affected farmers, treats the symptom but leaves the problem for the successor government to deal with in turn.

Now what they need is bit education about how they can borrow money from the banks rather than taking it from money-lenders  Villagers interviewed said they  were disinclined and nervous to approach a commercial bank as getting a loan from a bank  was ‘not easy and a time-consuming process’.  They instead  preferred  the moneylender , who came to their immediate rescue – ‘no questions asked .  Should bank get  sensitive to the illiteracy of the farmers and help them in the documentations required  for availing the loan from banks, then both the  Government and   banks can work together to help  them.