Farmer Debt Waivers: The Ongoing Debate

Farmer Debt Waivers: The Ongoing Debate

This year’s Budget, which was presented by the Financial Minister Mr. P. Chidambaram in Parliament a couple of weeks ago, has been termed a populist and an election-year budget. One aspect of the Budget that has been subject to intense scrutiny and debate pertains to the waivers and one-time settlements offered to certain farmers who have obtained agricultural loans from scheduled commercial banks, regional rural banks and cooperative credit institutions.Budget TermsIn his Budget speech, the Finance Minister stated (in paragraph 73):

“Debt Waiver and Debt Relief 73. Sir, while I am confident that the schemes and measures that I have listed above will give a boost to the agriculture sector, the question that still looms large is what we should do about the indebtedness of farmers. Honourable members will recall that Government had appointed a Committee under Dr. R. Radhakrishna to examine all aspects of agricultural indebtedness. The Committee has since submitted its report and it is in the public domain. The Committee had made a number of recommendations but stopped short of recommending waiver of agricultural loans. However, Government is conscious of the dimensions of the problem and is sensitive to the difficulties of the farming community, especially the small and marginal farmers. Having carefully weighed the pros and cons of debt waiver and having taken into account the resource position, I place before this House a scheme of debt waiver and debt relief for farmers:

(i) All agricultural loans disbursed by scheduled commercial banks, regional rural banks and cooperative credit institutions up to March 31, 2007 and overdue as on December 31, 2007 will be covered under the scheme.

(ii) For marginal farmers (i.e., holding upto 1 hectare) and small farmers (1-2 hectare), there will be a complete waiver of all loans that were overdue on December 31, 2007 and which remained unpaid until February 29, 2008. In respect of other farmers, there will be a one time settlement (OTS) scheme for all loans that were overdue on December 31, 2007 and which remained unpaid until February 29, 2008. Under the OTS, a rebate of 25 per cent will be given against payment of the balance of 75 per cent.…”

The Budget estimates the total figure of the debt waiver to be in the region of Rs. 60,000 crore (Rs. 600 billion).Some of the key features of the debt waiver are as follows:

(i) they are applicable to agricultural loans disbursed by scheduled commercial banks, regional rural banks and cooperative credit institutions;

(ii) marginal and small farmers get a complete waiver of the loans;

(iii) other farmers are entitled to a one-time settlement under which they get a rebate of 25% of the loan outstanding, while they are required to pay the balance 75%.Public Interest Litigation This farmer debt waiver was challenged in the Supreme Court in a public interest litigation (PIL) within days of the Budget announcement. The petitioner, ML Sharma, alleged that the amount of debt held by small and marginal farmers was way below the Rs. 60,000-crore figure suggested by the Government. Further, the PIL sought that the waiver not be limited to farmers who have taken loans from nationalised banks, but also be extended to farmers who have obtained finances from private banks and private money lenders.The Supreme Court, however, refused urgent hearing on the petition on the ground that the waiver was still a proposal pending before Parliament, and that the Court would not interfere on an issue that is still being discussed in Parliament.

The Supreme Court’s approach seems appropriate at this stage because the petition is premature – the proposal is still being discussed in Parliament, and there is not certainty that the debt waiver will assume the nature of a binding law in the same form that it has been proposed, if at all.However, since the matter has assumed importance, not only due to several legal and economic issues that it raises, but also because of the significant political overtones surrounding it, there is strong reason to suspect that the issue will not die down so easily that that the matter will spring up in further litigation at a later stage.It would therefore not be out of place to discuss some of the key issues that emerge from the debt waivers proposed. The purpose of this post is only to raise the issues and highlight the arguments from different points of view, but no attempt is being made to proffer any final solutions (as that may not only be premature yet, but will necessarily involve a far more detailed exercise).Implications

1. Size of the Problem A key challenge to the proposal has been the alleged incongruity in the numbers disclosed by the Government. It is believed that the amount of loans borrowed by farmers from public sectors banks is far less than the numbers (i.e. Rs. 60,000 crores) arrived at by the Government. For example, the Economic Times reports today that the non-performing assets/ loans (NPAs) of all scheduled commercial banks stood at Rs. 20,100 crore, the NPAs of the cooperative sector at Rs. 32,500 crores and the NPAs of the regional rural banks at Rs. 1,000 crores. Therefore, all the NPAs of the affected set of banks totals only to Rs. 53,600 crores. Now, these figures include all loans that are non-performing in the books of the banks that arise from all types of activities, including agricultural and non-agricultural activities. Then, it seems curious at a first glance as to how the agricultural non-performing loans as proposed in the Budget stand at Rs. 60,000 crores, when the entire non-performing loans (from all sectors) of the scheduled commercial banks, cooperative banks and regional rural banks stand only at a lesser figure of Rs. 53,600 crores. This defies logic, and the anomaly in the figures requires further explanation, failing which the proposal could be susceptible to serious challenge on the ground that the proposal seeks to address an illusory problem that does not exist at all.

2. Issues of ClassificationAny challenge to the proposal is likely to involve issues of classification that constitutional lawyers are entirely familiar with. Has there been any arbitrariness in determining the class of farmers that are eligible to the waiver benefit? For instance, why are only loans borrowed from scheduled commercial banks, regional rural banks and cooperative credit institutions eligible for the waiver? Why not the loans borrowed from private commercial banks or private money lenders? In fact, commentators have stated that the agriculture sector is quite substantially funded by private money lenders whose terms of lending (such as exorbitant interest rates) and harsh recovery methods cause unbearable harassment to poor farmers, sometimes even resulting in farmer suicides.

Certainly, the public sector banks are likely to be softer on borrowers than private money lenders. Now, if the Budget proposal is to address the issue of farmer harassment, one issue that may arise is why the private money lenders have been left out of the waivers. The legal approach to dealing with private money lenders may be somewhat different because that would involve cancellation of the loan contracts they have entered into with borrowers, unlike in the case of public sector banks where the Government has direct authority over the activities of these banks themselves which can forego their rights under the loan contracts without involving a cancellation of the contracts. But, that may not necessarily explain the reasons for leaving the private money lenders out of the scheme.There may potentially be challenges to the types of farmers who are eligible to benefit from the waiver. For example, there have already been calls from members of parliament such as Rahul Gandhi to increase the threshold limits of landholding that determine which farmers are entitled to the benefits.

3. Moral Hazard

This is a problem that arises in economics where one of the parties to a contract has entered into the contract without good faith or has the incentive to take unusual risks without any attendant consequences. In the context of loan transactions, this involves cases where borrowers have taken loans, made risky investments and defaulted on the loans, but have been rescued either by government intervention or other circumstances thereby excusing them from fully performing the contract, as they would have been required to had the intervention not occurred. The problem with moral hazard is that it induces risky behaviour in other borrowers who, having witnessed their peers being bailed out, generate expectations in themselves of being similarly bailed out and hence indulge in risky investments.Applying this (implicitly) in the context of farmer debt waivers, Gurcharan Das, a well-known commentator on the Indian economy, notes that such waivers are likely to result in large scale defaults by farmers that will impose an unbearable burden on the Indian public banking system. However, others have countered this point by arguing that bail-outs and the moral hazard problem are not unique to the farming sector. It ubiquitous in the industrial sector. That is indeed a fact hardly capable of being disputed. We witness bail-outs all the time of different industrial groups or banks that have gone into the red, and usually such bail-outs have been the result of governmental intervention either directly or through the involvement of central banks. For instance, we are seeing such bail-outs unfold before us in the sub-prime crisis where several banks and economies themselves (the United States for one) have seen interventions by the central banks (such as the Federal Reserve in the case of the United States). Such industrial bail-outs are common in India too. It is probably too hard to disagree with the proponents of the farmer debt waiver measures that the moral hazard problem is universal and should not be held up as a red-flag to scuttle the waiver of farmers’ debts.
Despite all the legalities and economic aspects involved in this ongoing issue, one thing seems clear. The debt waiver is perhaps only a short term measure to extricate some farmers out of their financial misery. It does not, however, address long-term issues on how agriculture can grow through proper methods of financing the farmers. There are several other long-term measures that need to taken to improve the situation of farmers. However, as far as financing is concerned, there is a need to find ways of more sustained lending measures that properly support the farmers in their activities so as to enable them to repay their loans without imposing too high a burden and thereby keeping the non-performing loans at a low rate. It may even be necessary to replicate the success of the micro-credit financing schemes in the agricultural sector in the longer term.

Which form does an NRI need to file tax returns ?

Which form does an NRI need to file tax returns
I am working in the US and need to file my income tax returns in India. I qualify as an NRI but also have two months income in India for which my employer has issued a TDS certificate.
How and where do I file my return? Which form do I need to use for the return?

From the information provided by you it seems that you were employed in India for 2 months and have gone abroad for the purpose of employment. You can file your returns in any of the following forms:
Form 2A - This form can be used if your income is less than Rs 200,000, and if your income does not comprise income under the head Profits and Gains from business or profession and if you don't have any brought forward losses.
Form 3 - This form can be used if your income is more than Rs 200,000.
Saral - This is a general form that can be used by anyone.

You are required to file your return based on the ward or circle of Income Tax where you are covered. If you have filed IT returns in the earlier years then the IT ward or circle number would be mentioned on the stamp affixed on the acknowledgement of such a return. If such acknowledgement was not available then the IT return would need to be filed based either on the name of your employer in India.
Source: http://www.rediff.com/money/perfin/2000/sep/20nritax.htm

Interest-free loans to employees and tax implications

Perquisites in relation to an employee are the personal advantage gained by the employee during the course of his/her employment. It is the profit or gain incidentally made from employment in addition to regular salary or wages. Section 17(2) of the Income Tax Act, 1961 defines perquisite in an inclusive manner. It includes the following:

The value of rent-free accommodation provided to the employee by the employer.
The value of concession in the matter of rent in respect of any accommodation provided to the employee by the employer.
The value of any benefit or amenity granted or provided free of cost or at concessional rate in case of specified employees.

The value of any specified security allotted or transferred, directly or indirectly, by any person free of cost or at concessional rate to an individual who is or has been in employment of that person, such as ESOP (applicable only up to financial year 1999-2000).
Any sum paid by the employer in respect of any obligation which, but for such payment, would have been payable by the employee.
Any sum payable by the employer, whether directly or through a fund other than a recognised provident fund or approved superannuation fund or a deposit linked insurance fund, to effect an assurance on the life of the employee or to effect a contract for an annuity.
From the above it becomes evident that any benefit, concession or amenity given by an employer to his employee would take the form of perquisite taxable in the hands of the employee. One such interesting situation is that of interest-free loan or loan provided at concessional rate by an employer to his employee.

The questions that come to our mind are:

Whether such benefit is really a perquisite?
Whether such benefit is taxable and if yes in whose hands would it be taxed?
What rate of tax would be attracted?
The answers to these questions could be found in the various decisions delivered by high courts and the Supreme Court. It could definitely be argued that loan given by an employer free of interest or at concessional rate would endow benefit to the employee, which otherwise would have been borne by such employee. Let us take an example to get a clear idea.

UK going green ?

UK going green?
You might think so. Since we’ve been here, we’ve been inundated with organic produce and eco-renovation television programming - my son is even using environmentally friendly diaper wipes.
What else is going green? UK tax policy.
The Chancellor has introduced a new budget which includes a substantial tax on higher carbon emitting vehicles. A new Range Rover, which is included in the highest category, can now result in a tax increase in the first year of nearly 1000 pounds (sadly, with the exchange rate, is equal to $2000).
The idea is to provide a disincentive for the average taxpayer to buy an inefficient vehicle. Unlike the 3p increase in beer prices, this kind of increase is likely to make a difference in taxpayer behavior.
Smart policy or destined to be a problem?

NOT Before Supreme Court - Legality of Land into Trust Authorization

Legality of Land into Trust Authorization NOT Before Supreme Court

The Supreme Court granted cert today in Carcieri v. Kempthorne, No. 07-526. The case involves efforts by the State of Rhode Island to prevent additional lands from being taken in trust by the federal government for the Narragansett Tribe. Materials regarding the background of the case, the petition for certiorari and the lower court opinion can be found here. While first two of the three issues Rhode Island presented in the case involve narrow questions applicable primarily to the Narragansett as a result of the Rhode Island Indian Claims Settlement Act, one of the issues in the cert petition involves a nationwide bombshell -- the legality of Section 5 of the Indian Reorganization Act (IRA). Specifically, the question Rhode Island sought to present in the cert petition is "Whether providing land “for Indians” in the 1934 Act establishes a sufficiently intelligible principle upon which to delegate the power to take land into trust." Since Section 5 of the IRA provides the only general federal statute authorizing the federal government to take land, an adverse ruling from the Court on this issue could have catastrophic consequences for Indian tribes nationwide. Fortunately, the Supreme Court order limited review to the first two narrow issues and declined review on the broader issue of Section 5 and the nondelagation doctrine. This was at least the second time that the Supreme Court has declined to tackle nondelagation doctrine challenges to Section 5 head on. The first occurred when the Supreme Court vacated the adverse decision in South Dakota v. United States Dep’t of the Interior, 69 F.3d 878 (8th Cir. 1995), resulting in the later decision uphold the authority of the Secretary to take land into trust under Section 5. That decision is available here.

Lecture on Death Penalty in Asia

Lecture on Death Penalty in Asia
There will be a lecture by David T. Johnson, Professor of Sociology and Adjunct Professor of Law, University of Hawaii, on "The Next Frontier: National Development, Political Change, and the Death Penalty in Asia" at the Centre for the Study of Law and Governance, Jawaharlal Nehru University, New Delhi at 3 p.m. on March 14th.Over the last three decades, the number of countries in the world to abolish capital punishment has tripled, and some regions of the world, such as Europe and Latin America, are now almost death penalty free zones. In this context, Asia has become the regional capital of capital punishment, the site of more than 90% of all the judicial executions in the world. But death penalty policy and practice is changing in Asia too. This talk, based on a forthcoming book with the same title, describes and explains how capital punishment is changing in Asia and explores some possible death penalty futures in Asia generally and in India specifically.

The Indian Judicial System

The Indian Judicial System has the Supreme Court of India at its helm, which at present is located only in the capital city of Delhi, without any benches in any part of the nation, and is presided by the Chief Justice of India.
The Supreme Court of India has many Benches for the litigation, and this apex court is not only the final court of permissible Appeal, but also deals with interstate matters, and matters comprising of more than one state, and the matters between the Union Government and any one or more states, as the matters on its original side. The President of India can always seek consultation and guidance including the opinion of the apex court and its judges. This court also has powers to punish anybody for its own contempt.
The largest bench of the Supreme Court of India is called the Constitution Bench and comprises of 5 or 7 judges, depending on the importance attached of the matters before it, as well as the work load of the court.
The apex court comprises only of various benches comprising of the Divisional benches of 2 and 3 judges, and the Full benches of 3 or 5 judges.
The Appeals to this court are allowed from the High Court, only after the matter is deemed to be important enough on the point of law or on the subject of the constitution of the nation, and is certified as such by the relevant High Court.
In the absence of any certificate from the High Court, a person may, with the leave of the apex court, appeal to this court, by filing a Special Leave Petition before the court.
A person or body may also file a Writ against the violation of Fundamental Rights granted under the Constitution of India, with the permission of the apex court.
Certain writs are allowed to be instituted in the apex court directly, against the orders of the Courts of the Court Martial, and the Central Administrative Tribunals.

Study Tracks Subprime Litigation

Study Tracks Subprime Litigation:

Hat tip to Consumer Law & Policy Blog for alerting us to a new report from Navigant Consulting tracking trends in subprime mortgage litigation. It found 278 subprime-related cases filed in federal court in 2007, with well over half filed in the second half of the year.

From the report:
The number of subprime-related cases filed in federal court is accelerating dramatically. Indeed, the number of filings nearly doubled during the second half of 2007, from 97 to 181 (total of 278). Major case categories include borrower class actions (43 percent), securities cases (22 percent) and commercial contract disputes (22 percent), along with employment class actions, bankruptcy-related, and other cases.
Each of the top 10 subprime mortgage lenders for 2006 were named in at least one borrower class action during 2007, the report says.