Consistency a refuge of the unimaginative

• In terms of inter-sectoral deployment of gross bank credits, the share of agriculture in total credit has come down from 12.03 per cent in 2004-05 to 11.92 per cent in 2005-06. In spite of repeated pronouncements, the credit exposure to the agriculture sector has been close to just 10-12 per cent over the last ten years.

• In the relative share of borrowings from different sources the non-institutional credits has no doubt come down from 68.3 per cent from 1971 to 38.9 per cent in 2004. What is however worrisome is that reliance on non-institutional sources has in fact increased from 36.8 per cent in 1981 to 38.9 per cent in 2004 and what is worse the reliance on money lenders has increased from 16.1 per cent to 26.8 per cent during the same period.

It is heartening that Sharad Pawar does not want cultivators to repay their debts to money lenders but while its enforcement may be difficult, the withdrawal of non-institutional credit in the absence of adequate bank credit could only compound farmer distress. Rural credit expansion remains weak.

In terms of the geographical distribution, the share of Eastern India remains small. The five states of Andhra Pradesh, Karnataka, Maharashtra and Tamil Nadu garner 55 per cent of all outstanding rural credit as of March 2005. The entire North East has barely three per cent of outstanding loans.

Chidambaram is right that he cannot do anything about farmers’ borrowings from non-institutional sources, particularly money lenders. It sad, though, that despite repeated warnings the exposure of bank credit to rural sector have not increased significantly. The loan waiver is not a panacea for rural distress. Besides the skewed lending pattern also raises issues of equity. In the past, such waivers created fresh rural tensions, given faulty distribution, incomplete land records, connivance between patwaris and bank officials and the harassment in availing the relief. A lot depends on the clarity of the guidelines and honest implementation.

Leaving this aside there are other concerns.

The Prime Minister was at pains to explain to the National Development Council in December that the two areas which states need to give attention to are better targeting of subsidies and cutting down losses of the power sector. He went on to add that we must restore the financial health of electricity agencies as well as bring down T&D losses to 15 per cent. Time and again policy makers have criticised the onslaught of populism when the election cycle triggers a competitive race among states in seeking to outdo each other in offering free power, water and other freebies. As election draws closer, state governments would be increasingly disinclined to fully compensate either State Electricity Boards, Water Corporations and other entities for large subsidy outgoes. This would destroy an important principle painstakingly built over many years that the cost of compelling social programmes should be borne by the exchequer and not the commercial entity. There are a whole host of other farm related input subsidies on which an integrated view needs to be taken.

The Finance Minister is not opposed to direct cash transfers for ameliorating poverty. In fact the loan waiver is a form of cash transfer. Carrying this example further, all outgoes on anti-poverty schemes can be clubbed together and the benefits given directly through cash transfers. This would imply discontinuation of many ongoing schemes around which a vested lobby of state and central officials has got entrenched. Finally we need to be sensitive to its implications for autonomy in the decision-making process in public entities in an era of market liberalisation.

In more ways than one, the loan waiver marks a discontinuity from settled policy paradigms. Oscal Wilde was right that consistency is the last refuge of the unimaginative.