Extreme poverty in many cases drives an individual to seek debt to meet his inescapable obligations. Helplessness and a feeling of despair often leaves very few other options.
Debt Relief is the partial or total forgiveness of debt. Having been drawn in the dragnet of debt, the individual has very little scope to come out. It may lead to further adverse slide with consequences like bonded or child labour, crime, or even suicide. Hence, debt relief is one of the major steps towards poverty alleviation.
In modern times, the most common alternatives to debt relief are forbearance and debt restructuring. Forbearance means that interest payments (possibly including past due ones) are forgiven so long as payments resume. However, no reduction of principal occurs. In debt restructuring, an existing debt is replaced with a new debt. This may result in reduction of the principal (debt relief), or a simple change in terms of repayment.
The government has formulated a number of debt waiver and debit relief schemes for the farmers over the years. Most of the steps are aimed at marginal and small farmers.
Maharashtra Debt Relief Act, 1975 is one illustration of the legislative steps taken by a State to ameliorate the plight of those burdened by agricultural credit.
An Act to provide for relief from indebtedness to certain farmers, rural artisans, rural labourers and workers.
1. Aim - Immediate action to provide relief from indebtedness to certain farmers etc.
2. Restricted to loan liabilities and debts of workers who hold immovable properties of less than Rs. 20,000 should stand liquidated.
3. Those between Rs. 20,000 and Rs. 40,000 to receive moratorium for temporary period.
This was a one time benefit announced by the Government to cover direct agricultural loans. The farmers covered under this scheme are divided into three categories viz., small, marginal and other. The scheme provides relief in two forms i.e., debt waiver and debt relief. Number of small and marginal farmers constitute 70 to 94 per cent. of the total farmers in India.
One Time Settlement (OTS) offer was for other farmers. It provide that if a farmer paid 75% of the loan, he would be given 25% rebate.
Three crore small and marginal farmers and one crore other farmers were expected to benefit from the scheme.
Cost of the scheme is about Rs. 71,680 covered. It covers direct agricultural loans.
The scheme was aimed at providing relief to small, marginal and other farmers.
Small farmers are those who are cultivating between 1 to 2 hectares i.e., less than 5 acres. In such a case
1. Full debt waiver of their short-term crop loan.
2. All the overdue instalments on the investment credit would be written off.
Debt waiver is provided for a small or marginal farmer, where the entire eligible amount shall be waived.
Marginal Farmers are those in possession of upto one hectare or 2.5 acres. They could be owners or tenants or share cropper.
Other Farmers constitute the remaing lot whose land holding is more than 5 acres (2 hectares). Debt relief for other farmers is in the shape of
25% of the overdue to be written off
75% to be paid by them
The above loan waiver scheme was a one-time measure.
However, such schemes present scope for constitutional dispute. This is so because banking is subject to exclusive legislative competence of the Union. Refer Entry 45 in List 1. On the other hand, money lending and money lenders; relief of agricultural indebtedness comes under Entry 30 List II.
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