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Above: Farmers in Bengaluru protest against the Karnataka government while demanding a waiver of crop loans/Photo: UNI

The Karnataka Debt Relief Bill, 2018, awaiting presidential nod, is as much a life jacket for poor people caught in a debt trap as it is a deft manoeuvre by the JD(S) to gain political mileage

By Stephen David in Bengaluru

After nearly 4,000 debt-stricken farmers killed themselves in Karnataka over defaulting loans and crop failures in just four years, 2013-18, the five-month-old JD(S)-Congress coalition government decided to improve its credit score with its biggest voting bank—the community of farmers, agricultural labourers and all the workers below the poverty line caught in a mega debt trap—by bringing out a Karnataka Debt Relief Bill, 2018, to help in the writing off of some outstanding loan amounts to scheduled and non-scheduled banks and other financial agencies.

JD(S) supremo and former Prime Minister HD Deve Gowda, the “Humble Farmer” as he likes to be known—and father of Karnataka Chief Minister HD  Kumaraswamy—told India Legal that this Bill is a “poor people and farmerfriendly initiative mainly to rescue the victims saddled with high interest from private moneylenders and other financial institutions”. Gowda added that he “was confident that the various measures in the Bill, that is now awaiting the President’s assent, will keep the community, especially those from the farming sector, from killing themselves”.

Gowda and his two sons—Kumaraswamy and his brother, HD Revanna, who handles the powerful Public Works Department portfolio—called on Home Minister Rajnath Singh and the President at Rashtrapati Bhavan in the first week of October with a plea for an early nod from President Ramnath Kovind. The centre had sought some clarifications regarding the Bill that was unanimously passed in the Karnataka assembly a few weeks ago, and the state government has responded to their queries, especially relating to loans from scheduled banks. Where there is a Bill there is a political way for the Gowda family: Rashtrapati Bhavan’s nod for this Bill will yield a huge political cache even as the state goes for the November 3 byelections in five Lok Sabha and assembly seats.

This Bill is a take on the 1976 Debt Relief Act, first launched by a two-time Karnataka chief minister, D Devaraj Urs (1972-77), just after the Emergency to take on the powerful moneylenders. Backward classes champion Urs used that Bill as an instrument to heavily crack down on farmers’ oppressors, a move that helped him reap rich political dividends from the state’s roughly 30 million-strong farming community. Urs, who stood by the Indira Gandhi faction of the Congress party, built the Bill on the Emergency queen’s pro-poor slogan, garibi hatao, to cut his own swathe in the Karnataka political landscape.

Although Deve Gowda—who along with Ramakrishna Hegde, Veerendra Patil and others—had allied with the Congress (Organisation) opposing Gandhi and Urs’ relief bill, he decided to bring the 40-year-old Urs’ Act back to unshackle the hold of the moneylenders over the community. In addition, playing the farmer card will be a big political booster for the JD(S )which, with just a measly 36 seats in a 224-member Karnataka assembly, has been able to pull its majority coalition partner, the Congress (80 seats), by its nose. “Abnormal interest rates from private moneylenders have been killing the farmers and other small-time borrowers for a long time but nobody has been able to crack down on the strength of these loan sharks but things will change from now,” said Gowda, who has an octopus-like influence over the JD(S)-Congress coalition government, operating from his sprawling residence, Amogh, in south Bengaluru.

Even as the Rashtrapati Bhavan responds to the Bill, Karnataka Chief Secretary TM Vijayabhaskar has issued an internal circular asking the police to crack the whip on collection agents: “The government is examining the proposal to table the Karnataka Debt Relief Bill, 2018, to relieve small farmers, agricultural labourers and other weaker sections of society of their burden of debt. This information has been published in various newspapers. In the wake of this, it has been noticed that many such borrowers are illegally being harassed and assaulted by moneylenders in various instances.”  The circular directed authorities like Regional Commis­sioners, IGPs, Deputy Commissioners and SPs of all districts to take necessary steps to stop harassment of borrowers by private moneylenders.

On paper, these Shylocks cannot charge such high interest rates, it’s an offence—in local parlance, it is called meter baddi because in some cases the interest rates can go as high as 40 per cent for a day, Rs 1,000 loaned in the morning means the borrower has to return Rs 1,400 by the evening. The police can book these offences under the Karnataka Moneylenders’’ Act, 1961, Karnataka Money Lenders’ Rules, 1965, Karnataka Pawn Brokers’ Act, 1961, Karnataka Pawn Brokers’ Rules, 1966, Karnataka Prohibition of Charging of Exorbitant Interest Act, 2004, and The Prize Chits and Money Circulation Scheme (Banning) Act, 1978. Under the Karnataka Money Lenders Act, 1961, a licence is mandatory to run a finance firm, but there is so much demand from the community for a quick loan to meet emergencies that most of the rules are thrown to the winds.

“It is mainly to help these victims of harassment that the CM worked on this Bill,” says Kumaraswamy’s media advisor, Dinesh HB. “We used to receive hundreds of complaints from people who came to the CM’s janata darshans, hundreds of stories of financial misery and so we decided to bring out the Bill for which we also took the help of former state High Court judges like Justice KL Manjunath and others.”

One of the salient features of the Karnataka Debt Relief Bill (DRF) is empowering a local assistant commissioner to don the role of a debt relief officer (DRO) and crack the whip on private, exploitative moneylenders who don’t hesitate to hire bouncers/muscle men to harass borrowers not returning their money with high interest. So high that the borrowers—almost all of them very small farmers with sub-five acres, shrinking land holdings—just hit their lows, eventually leading them to take their own lives.

There are some conditions too in this proposed Bill—the relief won’t apply for those who have taken loans from micro-finance and other institutions that are governed by Reserve Bank of India rules and acts; farmers should not have land more than two hectares [around five acres]; annual income must be under Rs 1.25 lakh; and there should be no income from agricultural sources. The Bill provides for a jail term besides a penalty of up to Rs 1 lakh for convicted moneylenders. The ordinance and the subsequent Act cannot be challenged in a court of law.

The Congress party—although a majority partner, the role of the Congress is that of a minority because of its preoccupation with fighting dissidence within—was taken aback because Kumaraswamy deftly got the Bill passed in the assembly without so much as discussing the salient features with it in advance. Kumaraswamy justified the ordinance route and the secrecy because he didn’t want the BJP to thwart his plans. Kumaraswamy notes that the Bill will “particularly help the small farmers, agricultural labourers and members from the other weaker sections of society”.

He also told the Congress leaders that this was part of the loan waiver scheme that the JD(S) had announced in the election manifesto: within days of him becoming the CM, he gave an order to waive crop loans worth Rs 30,163 crore availed of by farmers from nationalised banks. The banks will be reimbursed the loan amount in four instalments: Rs 6,500 as the first tranche for fiscal 2018-19.

The Bill will be an uphill trek for moneylenders. On March 15, 2018, the Supreme Court in State of Karnataka vs The Karnataka Pawn Brokers Association held that provisions prohibiting payment of interest in the Karnataka Money Lenders’ Act, 1961, and Karnataka Pawn Brokers’ Act, 1961, on an amount of security deposits cannot be said to be arbitrary or violative of Article 14 of the Constitution of India.  The apex court dealt a blow to the moneylenders by ruling that the Karnataka government was free to put any restrictions that “make it more difficult” for moneylenders and pawnbrokers to carry on their trade.

A bench of Justices Madan B Lokur and Deepak Gupta had observed: “The profession of moneylending may be a trade, but onerous restrictions may be placed on such trade which is definitely usurious. These onerous restrictions would be reasonable keeping in view the nature of the trade…The legislature in its wisdom can decide whether it should make it more difficult for people to engage in the business of moneylending and pawnbroking.”

The court dismissed an appeal by the state pawnbrokers and moneylenders who had challenged a decades-old condition that they must deposit with the state some of their valuables and money as security, for which no interest would be paid.

For small borrowers standing at a financial precipice, Kumaraswamy’s attempts to throw a lifeline will be a big relief.  For his JD(S) party, battling the parliamentary and assembly bypolls in Karnataka next month, Kumaraswamy hopes the debt relief bill will start yielding results.

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