SC approves Tamil Nadu government’s loan waiver scheme for farmers

The scheme was introduced by the Tamil Nadu government in May 2016 as part of an electoral promise by which loans of small and marginal farmers were waived off. As per the state, the small farmer was classified as those holding land between 2.5 to 5 acres while marginal farmer held land up to 2.5 acres.
The Supreme Court did not agree with the conclusion of the high court that the Tamil Nadu government scheme was based on an electoral promise and should be struck down as it failed to include another category of farmers as well
The Supreme Court did not agree with the conclusion of the high court that the Tamil Nadu government scheme was based on an electoral promise and should be struck down as it failed to include another category of farmers as well
Published on Nov 24, 2021 01:06 AM IST
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ByAbraham Thomas, New Delhi

The Supreme Court on Tuesday said that a loan waiver scheme for farmers based on the size of their landholding will pass the constitutional test as long as there is a rational basis to justify such categorization. The Court was considering a crop loan waiver scheme for small and marginalized farmers in Tamil Nadu who were found to be poor.

The scheme was introduced by the Tamil Nadu government in May 2016 as part of an electoral promise by which loans of small and marginal farmers were waived off. As per the state, the small farmer was classified as those holding land between 2.5 to 5 acres while marginal farmer held land up to 2.5 acres.

The decision was challenged before the Madras high court by a farmers’ body called National South Indian River Interlinking Agriculturist Association. The high court set aside the decision in April 2017 against which the state government filed an appeal before the top court.

Deciding the appeal, a bench of justices Dhananjaya Y Chandrachud and AS Bopanna said, “The scheme propounded by the state of Tamil Nadu passes muster against the constitutional challenge. The High Court has erred in holding otherwise.”

The top court did not agree with the conclusion of the high court that the scheme was based on an electoral promise and should be struck down as it failed to include another category of farmers as well. The bench said, “A scheme can be held suspect only within the contours of the Constitution, irrespective of the intent with which the scheme was introduced…. It is settled law that a scheme cannot be held to be constitutionally suspect merely because it was based on an electoral promise.”

The state government took the stand that its decision was part of the fiscal policy of the state and should not be subject to judicial review. During the pendency of the case in the top court for over four years, the state government had provided a broader coverage of the scheme, based on its assessment of the situation.

The state had argued that the benefit was available to small and marginal farmers as they faced greater harm due to the erratic climate conditions given the limited technology and capital that they possess and by providing this scheme, the state’s limited financial resources could be utilized for maximum good.

An affidavit filed by the state showed that by waiving Rs. 5780 crore worth of crop loans, the number of small and marginal farmers who stand to benefit would be 16,94,145. While on the other hand, waiving the crop loan of 1980 Crore of other farmers would benefit only 3,01,926 farmers.

The bench said, “The objective of promoting the welfare of the farmers as a class to secure economic and social justice is well recognized by Article 38 of the Constitution. It needs to be determined if the classification based on the extent of landholding has a rational nexus to the object sought to be achieved.”

It analyzed that the small and marginal farmers faced a significant capital and resource deficit compared to the rest of the farmers. Further, the Court relied on a 2019 report on “The Situation Assessment of Agricultural Households and Land and Holdings of Households in Rural India, 2019” which revealed households having small landholdings of less than 0.01 hectares, used over 90% of agricultural loans for non-agricultural purposes in sharp contrast to households that owned 10 hectares of land which used only 17% of the agricultural loan for non-agricultural uses.

“This depicts the poverty that envelops the class of small and marginal farmers,” the top court said, adding, “The impugned loan waiver scheme is, in essence, a social policy in pursuance of the Directive Principles of State Policy, introduced with an object to eliminate inequality in status, income, and facilities.”

The decision on waiver of all outstanding crop loans was issued by the state government on May 13, 2016, on medium-term (agriculture) loans and long term (farm sector) loans issued to small and marginal farmers. The guidelines on the implementation of the scheme issued in June 2016 provided that the extent of landholding as mentioned in the landholding register and loan register at the time of sanction of the agricultural loan shall be taken into consideration at the time of granting the waiver.

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Monday, November 29, 2021