Poison Pills are mechanisms used in the corporate world to pre-empt certain actions such as hostile takeovers. The Indian government has given a new twist to the concept by making it a part of the national agenda. The Finance Minister, while presenting the budget for 2008-09 proposed a loan waiver of US $15 million (INR 600000 million) apparently to help farmers in distress. This is a classic Poison Pill that no government can afford to implement because of the serious economic implications, and no government can afford to reverse for fear of incurring the wrath of a sizable section of voters in an election year.

The avowed objective of the proposal is to bail out farmers who have lost their crops and are unable to repay their loans. Last year, an estimated 70,000 farmers committed suicide, unable to repay their loans. Though the minister has not revealed as to how this massive write-off would be funded, he has claimed that the move would benefit some 40 million farmers.

To check out the ground reality, we did a survey of 15 villages that are supposed to benefit from the scheme. The sample size was 300 small and marginal farmers. The results are startling to say the least. Of the 300 small farmers, we could not come across a single farmer who would benefit from the scheme. In fact, the loan waiver will not benefit the nearly 110 million small and marginal farmers who have borrowed money from the village lender at interest rates as high as 120%. The beneficiaries would primarily be the relatively large farmers who do not, with some honorable exceptions, deserve the waiver in the first place. We have found that loans taken for agricultural purposes have been used to buy a host of white goods – the latest SUVs, classy mobile phones and DVD Players, among others.

Let us spare a thought for the farmer who has used the loan genuinely for agriculture and has promptly repaid the loan. He gets nothing, nor does the farmer who most desperately needs the help to get from under impossible debt. The government itself is encouraging and probably perpetuating dishonesty. With a precedent having been set, no sensible borrower would want to repay a loan in the hope that one day, the government would write it off.

Political one-upmanship has already started. With elections to several states slated for this year, one of the political parties has declared that it would provide loans to farmers at 4% interest per year – well below the prime lending rate – and as an icing on the cake, no interest would be charged during the first year. How can political formations or governments be so irresponsible?

The solution, as always, is in taking a series of incremental steps that would help farmers in the short as well as the long term. Short term solutions include a simple and viable crop insurance scheme that would take care of the vagaries of the monsoon. Co-operative farming on lines similar to what has been achieved in milk production and distribution can pave the way for modern methods of cultivation, harvesting, and storage to be leveraged. Balancing reservoirs to store excess rain water that would otherwise flow into the sea in a few hours would be a long-term solution. Way back in the 1960s, a federal irrigation minister had suggested the linking of rivers. Everyone laughed at the suggestion. In hindsight, we should probably have listened to the sage advice. Even if rivers cannot be linked, there certainly is a strong case for better utilization of available water. Finally, to repeat what we have been advocating consistently, it is time we harnessed technology to improve agricultural productivity.