How a populist scheme in Tamil Nadu secured SC's approval

A Supreme Court bench consisting of Judges D.Y. Chandrachud and A.S. Bopanna upheld the decision of the Tamil Government to provide loan waivers to small and marginal farmers. The matter was brought to them after the Madurai bench of the Madras High Court quashed the Government order.
The Government of Tamil Nadu decided on May 13, 2016, to waive loans to small and marginal farmers. The outstanding loans were categorized into crop loans, medium-term (agricultural) loans and long term (farm sector) loans, and the guidelines to waive loans were released on June 28, 2016.
In the guidelines, it was mentioned that small farmers are required to have 2.5 up to 5 acres and marginal farmers should have at least 2.5 acres of land. The Registrar of Cooperative Societies on July 1, 2016, released guidelines for implementation of the scheme.
The scheme was challenged by the National South Indian River Interlinking Agriculturist Association (SIRIA) as it allegedly violated Article 14 of the Constitution. It was argued that a loan waiver should be given to every farmer irrespective of the extent of landholding.
It was held by the Madurai bench of the Madras High Court that not including farmers who hold more than five acres of land in the scheme is discriminatory and violative of Article 14.
The high court’s decision was stayed by the Supreme Court on July 3, 2017. In September 2019, a bench of Justices Bopanna and R. Banumathi opined that the government can provide other limited benefits to farmers who are not included in the scheme. Thereafter, the state executive brought an order on February 8, 2021, to waive off loans of Rs 12, 110.74 crores as of January 31, 2021, which was availed by 16,34,346 farmers from cooperative banks.

How did the court rule on this matter? 

The State of Tamil Nadu in the counter filed before the High Court stated that the classification was required since the small and marginal farmers suffer a greater degree of harm because of their limited capacity and aid. It is judicially recognized that the legislature is free to recognize degrees of harm and may confine its restrictions or benefits to those cases where the need is the clearest.

The Supreme Court found that the fact that 16,94,145 small and marginal  farmers have availed of agricultural loans as compared to 3,01,926 farmers belonging to the ‘other category’ testifies that the small and marginal farmers have a significant capital deficit when compared to the rest of the farmers. A huge capital deficit, combined with a reduction in the agricultural income due to water scarcity and crop inundation due to floods has led to financial distress. Small and marginal farmers are resource deficient; they do not have borewells to overcome the drought. These farmers are usually dependent on large farms to access land, water, inputs, credit, technology, and markets.

The bench reasoned that the application of the impugned scheme to only the small and the marginal farmers is justified for two reasons: (i) A climate crisis such as drought and flood causes large scale damages to small holdings as compared to the large holdings due to the absence of capital and technology; and (ii) The small and marginal farmers belong to the economically weaker section of society. Therefore, the loan waiver scheme in effect targets the economically weaker section of the rural population. The scheme is introduced with an endeavor to bring substantive equality in society by using affirmative action to uplift the socially and economically weaker sections.   Due to the distinct degree of harm suffered by the small and marginal farmers as compared to other farmers, it is justifiable that the benefit of the scheme is only provided to a specified class as small and marginal farmers constitute a class in themselves, the bench held.

It was noted by the apex court that the Madurai bench restricted the scheme because it was based on an electoral promise. The bench referred to its Subramaniam Balaji judgment of 2013, wherein it was held that a scheme cannot be seen as constitutionally suspect merely because it is based on an electoral promise. A scheme can be suspected which is contained under the contours of the Constitution, irrespective of the intention under which it was brought.

Likely consequences

Loan waivers are a short-term approach to provide relaxation to farmers; these are essential in a world of changing weather conditions. The status quo approach of the banking system has brought many farmers into the debt cycle, and loan waivers provide them relief from the same, the Supreme Court reasoned.
The Madras High Court’s decision to restrain the scheme could have diminished the relief to the small and marginalized farmers, who constitute about 92 per cent of all farmers in the state. The Supreme Court’s reversal of it reaffirms its equality jurisprudence.
(Asif Iqbal is a student of Centre for Juridical Studies at Dibrugarh University and an intern with the Leaflet.)

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