Economic Survey backs farm laws, flays Rajan policy

New Delhi: Amid conflicting views on the three new agrarian laws enacted by the central government, the Economic Survey 2020-21 tabled in Parliament on Friday termed the new farm laws as a “remedy” and which could herald “a new era of market freedom”

The Survey – which precedes annual Budget every year – also blames Reserve Bank of India leadership under controversial the then Governor Raghuram Rajan and blamed him for “further exacerbation of the (NPAs) situation”. The Survey says Rajan’s policies had actually ‘worsened’ the problems of NPAs. Rajan was appointed as head of the RBI in August 2013 during UPA regime and continued till June 2016.

The Survey seeks to bat strongly in favour of the farm laws and says, “The newly introduced farm laws herald a new era of market freedom which can go a long way in the improvement of farmer welfare in India”.

The three new farm laws are designed and intended “primarily” for small and marginal farmers who constitute 85 per cent of all farmers, it said adding, the farmers have suffered from various restrictions in marketing their products as there were several restrictions in selling agri-produce outside the APMC markets.

The survey says the Agricultural produce market committee regulations have resulted in a number of “inefficiencies and consequent loss” to the farmers. Presence of multiple intermediaries between farmers and final consumers has led to the low realisation by farmers. The latest rounds of agitation by farmers in the outskirts of Delhi were given out as protest by a large section of APMC market operators and brokers.

The protesting farmers’ bodies have been camping on the outskirts of the national capital demanding a repeal of the three laws—Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Act, 2020, and Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Act, 2020 and Farm Services and the Essential Commodities (Amendment) Act, 2020. The dispute had reached the Supreme Court. The government had earlier proposed to the protesting farmers to defer the implementation of the farm laws.

With regard RBI policies on NPAs, the Survey says, the decision on forbearance or allowing temporary suspension on loan repayments resulted in an increase in lending to unproductive firms, popularly referred to as “zombies”. The share of new loans to such “zombies” increased from 5 per cent in the financial year 2007-08 to 27 per cent in fiscal 2014-15. “Early resolutions of banking crises limit the damage from the same to the economy. Yet, the RBI dragged its feet in biting the bullet while attempting to persuade banks to recognise that the distinction between NPAs and restructured assets is nothing but accounting sleight of hand. The consequent result was a further exacerbation of the situation,” the survey said.

The last asset quality review (AQR) of banks in 2015 had failed to detect lenders evergreening loans outside the formal restructuring process, the Economic Survey said. It also called for a fresh AQR after the covid-19 forbearance ends. Of course, the effects of such evergreening manifested later at Yes Bank and Lakshmi Vilas Bank, two private lenders where bad loans built up to a high level. “Had the AQR exercise detected evergreening, the increase in their reported NPAs (non-performing assets) should have been in the initial years of AQR. Our analysis clearly shows most NPAs were lent and restructured during the forbearance phase. Hence, the RBI audit missed some severe cases of ever-greening by these banks,” the survey said.

‘Evergreening’ refers to banks extending fresh loans to delinquent borrowers to help them repay existing loans, hiding the true extent of bad loans. RBI under former RBI governor Raghuram Rajan ordered a thorough inspection of banks’ books. The AQR led to a significant rise in bad loan recognition, higher provisions and witnessed lenders reporting quarterly losses.