The Punjab Settlement of Agricultural Indebtedness Act, 2016 — notified recently — has once again brought to the fore the issue of insolvency and bankruptcy of farmers in the grain bowl of India. The debt situation in Punjab is abysmal. Recent data show that farmers in the State are under a debt of ₹70,000 crore — that’s the size of the largest nuclear missile deal India has inked with Russia.

To add to it, the widespread phenomenon of farmer suicides which was limited to agriculturally less-developed regions in the country, has now spread its tentacles to Punjab as well, which recorded the highest number of suicides in 2015, after Maharashtra.

The Act, which had been gathering dust for 15 years, has finally been passed in the run-up to the assembly elections scheduled in 2017. Strategically, it seems to be a political tool to win over peasant voters. However, the heart of the debate lies in whether it offers anything worthwhile amidst the already existing laws.

Law, and behold! The multiple State legislations for relief from indebtedness reveal that the system is nothing but a chaotic patchwork of laws. The Punjab Relief of Indebtedness Act, 1934, provides a mechanism for amicable settlement between creditors and debtors (which specifically include agriculturists) of unorganised debts not exceeding ₹10,000 by debt conciliation boards, which are quasi-judicial bodies.

Further, decreeing a debt for a sum exceeding double the principal amount is prohibited in certain cases. It was followed by the Punjab Debtors’ Protection Act, 1936, which prohibits certain lands, including farmland from being attached and sold in pursuance of execution of a decree for payment of unorganised debt.

In reality, this Act is not followed. The Punjab Restoration of Mortgaged Lands Act, 1938 provides for statutory extinguishment of mortgage of agricultural land, once the mortgagor has paid an amount twice or more of the principal amount.

On the same lines, the Punjab Agricultural Indebtedness (Relief) Act, 1975, provides for discharge of debt of farmers and release of mortgaged property if a sum exceeding or equivalent to one and a half times of the principal amount of the debt has been paid, however, judicial evidence shows that this act was hardly evoked.

Additionally, there are laws governing money lenders and the interest rate that can be charged by them. It is evident that the principle embodied in all the legislations has not changed over the years, and it seems to be failing, as the debts seem to be mounting.

The callous approach to studying the root of the problem and the lack of will to find an innovative solution seem to be the reasons why an Act, which says nothing new to address the chronic problem of agricultural debt, is being pushed.

Need overall changes The real solution to the agrarian debt crisis in Punjab lies in addressing the systemic problems of agriculture of unpredictability of rains, pest attacks, stagnant minimum support prices, dwindling farm exports, meagre returns, low water supply and slump in farm commodity prices.

Some of these solutions are beyond the remit of legislation, others, while possible, are not contemplated by the Act.

It is apparent that the Act is a damage control measure being undertaken by the government. However, it seems to be a tepid effort as it is an encore of the existing State laws dating back to the 1930s. A relief in the form of debt waiver and release of mortgaged property, on the payment of an amount equivalent to twice the debt has been provided for under the Act, this time through special forums at the district and state level, to which all cases of agricultural indebtedness would stand transferred.

The challenge to this infrastructural setting is evident. They are likely to be overburdened from the very beginning. As for their functioning, conflict is imminent when the forum consists of one representative each from the farming community and money lending community.

Further, a decision of the forum is binding even if there is vacancy of a member, implying that decisions binding on the farmer can be passed even if the representative of the farmer is absent.

The glaring absence of provisions prohibiting seizure and auction of farmers’ property and the non-fixing of the interest rate chargeable on the debt are major flaws in the Act for which there seems to be no justification.

Further, a big chunk of debts usually incurred by farmers is exempted from its ambit, including institutional debts, debts taken for trade, debts in relation to rent etc., which renders the Act a bit futile. Unfortunately, the Act in a way assures a double return to the money lenders for the money lent.

A possibly better substitute to the Act would be the fresh start process under the Insolvency & Bankruptcy Code, 2016, albeit with revised monetary thresholds, which has been recently passed by the Rajya Sabha.

An indigent person, including a distressed farmer, can file for a judicial debt waiver order for unorganised or institutional unsecured debt taken for any purpose, and not just agricultural purposes, at an early stage of his insolvency itself — at any time after three months of incurring the debt, if he is unable to pay his debt for any genuine reason.

The waiver is not automatic as a court process is envisaged, but the futility of biding time till a person is beleaguered by money lenders or has paid twice the debt amount with exorbitant interest rates is done away with.

Act now This mechanism is far more user friendly as it provides for a moratorium on any debt recovery actions by the creditors till the debt waiver order is granted and is also a healthier alternative to the politically motivated one-time debt waiver schemes doled out by the government, as it is a court driven permanent mechanism. Being a part of a central law on a subject in the concurrent list, it will be applicable to all States in India.

The Act makes a superficial attempt to solve the issue of agricultural indebtedness, as it brushes the real concerns plaguing the agrarian distress situation under the carpet. Not much thought has been put into transforming the Act into a tangible solution. Instead, it has ended up being a mere vote garnering tactic.

With a timeline of more than a decade, so much more could have been done in terms of drafting an innovative law which enables the distressed to file for relief at an early stage, protect his property and avoid harassment by money lenders.

Unfortunately, none of these concerns have been addressed effectively by the Act. Being a mere repetition of the old law, any hope for an improvement in the condition of the poor farmers in Punjab appears to be fading.

The writer is a research fellow at Vidhi Centre for Legal Policy

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