After the massive ₹36,585-crore farm loan waiver announced by the BJP-led government in Maharashtra in June, benefitting 56 lakh farmers, the newly formed Tamilaga Vettri Kazhagam (TVK)-led government in Tamil Nadu has announced a conditional farm loan waiver for cooperative bank borrowers in May.

Aimed at fulfilling a electoral promise and helping Tamil Nadu’s heavily indebted farmers, this initiative will provide some respite to small and marginal farmers.

However, can a one-time debt relief solve deep-rooted farm issues faced by the farmers?

The scheme allocates ₹2,044.46 crore to benefit approximately 14.22 lakh farmers, but its eligibility criteria apply strictly to short-term crop loans availed through cooperative banks between May 1, 2025 and February 28, 2026.

Rather than following a blanket write-off, the government has introduced an innovative Graded Relief system that gives the quantum of waiver based on outstanding loan amounts and farm-size classifications. Under this framework, marginal farmers holding debts up to ₹50,000 will receive a complete waiver, whereas small farmers within the same debt bracket are eligible only for a 50 per cent relief.

This policy design follows a progressive, variable economic logic where the rate of relief systematically decreases as the outstanding credit volume scales upward. Specifically, agricultural loans falling between the brackets of ₹50,001 and ₹60,000 receive a fixed waiver of ₹40,000. This benefit declines as the debt size increases. Consequently, the large landholders and other categories of farmers with debts exceeding ₹1,00,000 will receive a waiver of just ₹5,000. Though the one-time debt write-offs are never a permanent panacea for systemic agrarian distress, the innovative use of an explicit graded scale used to fix the relief deserves due recognition.

History of debt waivers

There’s a long history of farm loan waivers in India. Citing droughts, monsoon failures and floods, various state governments have implemented small-scale relief schemes since 1987. However, driven by an alarming escalation in nationwide farm suicides and taking into account the grim findings of the Radhakrishna Committee Report on Indebtedness (2006), the Centre launched a massive nationwide Agricultural Debt Waiver and Debt Relief Scheme in 2008.

This scheme wrote off nearly ₹60,000 crore, covering about 3.7 crore small and marginal farmers and 60 lakh other farmers, though the CAG flagged severe institutional irregularities in its audit report later.

Since then, several States have routinely announced debt waivers. Policymakers have operated under the assumption that these measures would completely arrest farmer suicides. But, empirical data reveal that even after the massive 2008 intervention, the tragedy of farm suicides persisted.

The pre-waiver period of 1995-2008 recorded an average of 41 farmer suicides per day, but this tragic figure actually rose to 43 during the post-waiver period of 2009-2011.

The core malady

The primary reason farmers default on credit is that the absolute returns realised from crop cultivation are abysmally low. According to the situation assessment survey of agricultural households (2021), the average monthly net receipt from crop cultivation for a farm household in Tamil Nadu was just ₹2,641, amounting to a meagre daily income of about ₹88. Can a farm family manage basic household expenditures with this amount?

This suppressed income is primarily driven by escalating cultivation costs juxtaposed against highly unremunerative farm-gate prices. For instance, an analysis of data published by the Commission for Agricultural Costs and Prices spanning from 1974-75 to 2021-22 shows that paddy cultivators in Tamil Nadu realised profits in only 15 of those years in terms of total cost of production (cost C2).

Shockingly, in the period following 2000-01, paddy cultivation was profitable in just three years. In such dire conditions, a one-time debt relief acts merely as a stop-gap measure. When farmers take loans for the next cropping season under the same unprofitable conditions, they are bound to fall into a debt trap again.

Furthermore, the Rangarajan Committee Report on Financial Inclusion (2008) highlighted that over 66 per cent of India’s small and marginal farmers (who constitute more than 80 per cent of the farming households) lack access to formal institutional credit, forcing them to depend on informal, usurious money lenders. Since the Tamil Nadu government’s waiver targets only cooperative bank borrowers, the vast majority of vulnerable smallholders trapped under informal debt nets remain entirely untouched, marking critical limitation of this relief scheme.

Looking ahead

Neither the massive loan-waiver of Maharashtra nor the graded loan-waiver announced by Tamil Nadu can insulate the resource poor farmers from structural debt vulnerabilities permanently. To ensure debt-free livelihoods, many proactive policy interventions need to be implemented, particularly focusing on markets.

First, farmers currently face stiffer challenges in marketing and selling their produce than in the production side. Government agencies must accelerate and streamline the procurement of major commodities. Following other States, Tamil Nadu should actively implement a robust Market Intervention Scheme (MIS) to shield farmers during severe market price crashes.

Second, as recommended by the National Commission on Farmers (2006) headed by MS Swaminathan, the State government should fix the Minimum Support Price at 50 per cent above the comprehensive cost of cultivation by backing it with a dedicated state price stabilization fund.

Third, the acute shortage of storage facilities at procurement centres leads to catastrophic post-harvest losses, as harvested paddy bags are routinely drenched and germinated in open yards during rains.

Warehousing capacity must be created across districts, mapped directly to local production volumes.

To conclude, a one-time debt waiver cannot eradicate unremitting rural indebtedness. As long as agriculture is deprived of fair pricing, adequate procurement, secured markets and assured irrigation, indebtedness will continue to haunt the farmers.

The State government must seriously focus on restructuring farm markets.

The writer is an Economist and former full-time Member (Official), Commission for Agricultural Costs and Prices, New Delhi. Views expressed are personal

Published on June 11, 2026