Former Reserve Bank governor YV Reddy has proposed an agricultural risk fund with contributions from the central and state governments and participating banks, administered through an impartial, professional framework as a better alternative to blanket farm loan waivers.

Reddy proposed even delivering the Vijay Shankar Vyas memorial lecture in Jaipur on sixteen February titled, ‘Bleeding Hearts and Thinking Minds.’ Vyas had headed an advisory committee on credit score flow to agriculture and related sectors, which Reddy had appointed while he became into Reserve Bank governor. The committee, in its report of June 2004, had proposed an agri-threat fund.

The present-day crop of farm mortgage write-offs does not discriminate among irrigated agriculture, which is notably risk-averse and depends on erratic monsoons. The waivers are connected to asset possession; farmers want personal land to be eligible. They exclude informal leaseholder-cultivators. The relief follows the ‘electoral cycle’ and no longer the ‘distress cycle,’ Reddy said.

A mortgage is a settlement, and it’s miles flawed for governments as third parties to insinuate themselves in a covenant among a financial institution and the farmer borrower, Reddy stated. But farming is a volatile interest; even farmers who want to pay off can be forced to default for motives beyond their manipulate, like erratic climate, fee slumps, and alternate restrictions.

Unlike corporate debtors, who’ve limited liability, farmers are owner-producers. Their liability is unlimited, and their non-public belongings can be attached if agricultural income is insufficient to repay a loan or the collateral falls short.

Reddy stated that a nuanced approach is important. The comfort to be supplied to farmers in real default must be professionally assessed, and both the banker and the borrower might make sacrifices.

The Kerala Debt Relief Commission “could be the proximate model,” Reddy said in a telephonic communique.

The Kerala Commission was installed in 2007 after some of the farmers inside the kingdom had killed themselves while crashing costs of pepper and rubber had compelled them into debt default. It is based on the pre-Independence generation Sir Chhotu Ram Commission of Punjab.

According to an information record, Prabhat Patnaik, a Marxist economist, had suggested that model to Kerala’s communist government. Ram was an outstanding baby-kisser of pre-Partition Punjab who co-founded a party that represented the interests of zamindars. But he championed measures to provide comfort to farmers from usurious moneylenders.

The Kerala Commission has seven members. It is headed by a retired Chief Justice of the Kerala High Court.

Justice (retired) KR Udayabhanu, who changed into the fee’s chairman for six years till last May, stated its mandate changed into confined to waiving off loans which farmers had taken from cooperative banks.

To be eligible, the yearly income of the applicant must be much less than Rs 2 lakh. The commission has quasi-judicial powers. It can lead to the restoration of loans and the eviction of debtors. But it doesn’t have the power of enforcement. It couldn’t act on loans from nationalized banks as the Reserve Bank had managed them.

The fee holds sittings in districts with a wide variety of agriculturists, like Idukki, Wayanad, and Kozhikode, after inviting applications and giving notice to the banks. The candidates are farmers, but their loans don’t have to be agricultural. Often, cooperative banks don’t give agricultural loans, as they may be low-interest-bearing.

Applicants grow to be ineligible if they own or lease more than 5 acres of land. The commission offers alleviation on such loans, provided they’re not for enterprise or ‘luxury’ functions like buying an automobile. Since they pay 12-14 percent for deposits, they prefer to supply non-agricultural loans. The comfort can’t exceed Rs 1 lakh.

Udayabhanu stated that the commission limits the recovery of amassed interest to the principal amount; if the principal is Rs 50,000, the interest payable can’t exceed that amount.

Has the fee helped lessen suicides amongst farmers? Kerala is an extremely suicide-free state. Between 2007 and 2015, there were not many alternates in the overall number of suicides within the state. Udayabhanu says ‘There had been no suicides at all.”

It has ranged among 7, seven hundred and nine,000. The number of suicides amongst cultivators and agricultural laborers fell from 1,232 in 2007 to 807 in 2014. In 2015 and 2016, it fell sharply to 201 and 321, respectively. Most of the suicides are of agricultural laborers. The bureau attributes very few of those suicides to agrarian distress: 68 in 2007, 11 in the following 12 months, and none in 2009 and 2010 (The latest facts on this score aren’t available).

“Once the principle is installed, the details can be labored out,” Reddy said when asked whether the Kerala version might be prolonged to other states. The standards for debt comfort may be exclusive for various plants and agro-climatic zones, he added.

Reddy was involved in the spate of income switch schemes and farm mortgage waivers introduced by way of the center and the states. He stated the first farm loan waiver changed into made using finance minister Madhu Dandavate in 1990. It was Rs. 10,000 crore, or Rs 50,557 crore in 2017 expenses. Dandavate had said that the waiver might not be repeated, but Reddy referred to that promise has been again and again breached.