GS Mains Model Question & Answer: To waive farm loans is a feasible option. Justify. Suggest alternative measures if not. Examine. Comment

Q. To waive farm loans is a feasible option. Justify. Suggest alternative measures if not. Comment

To waive farm loans is a feasible option. Justify. Suggest alternative measures if not.

To waive farm loans could be seen in the following perspective:

Loan waivers impose a significant cost on the budgets of State governments since banks will have to be compensated by the governments for the losses they incur.
Further, the offer to waive off loans could end up increasing the cost to governments by encouraging wilful default by farmers who can actually afford to pay off their loans.
Loan waivers also lead to the problem of moral hazard. Farmers, when they know that the government will waive off their loans when things go wrong, are more likely to make poor investments or take higher risks.
In actual farmer distress it is helpful but there is a proper mechanism to assess the real situation.
It could not be seen as a populist measure of political vote bank only.
Alternative measures:
Indian agriculture faces a secular crisis due to the risks involved in agriculture, and the lack of sufficient returns. Many economists have argued that this cannot be solved through temporary populist measures, but instead requires structural reforms. Such reforms can help improve farmer incomes and also encourage farmers to seek their livelihood in more profitable sectors of the economy.