Supreme Court: The bench of Dr. DY Chandrachud* and AS Bopanna, JJ has upheld the constitutionality of the Scheme formulated by the State of Tamil Nadu granting loan waiver to small and marginal farmers as these farmers suffer a greater degree of harm because of their limited capacity and aid.

Factual Background

A Government Scheme which granted loan waiver to small and marginal farmers was under challenge before the Court for being discriminatory against other farmers. The Madras High Court held the grant of loan waivers only to small and marginal farmers to be arbitrary and directed the appellant to grant the same benefit to all farmers irrespective of the extent of landholding. The High Court in the impugned judgment has observed that the scheme is both under-inclusive and over-inclusive since the total extent of land held by a person is calculated based on the information in the landholding register which permits discrepancies. It also held the scheme to be under-inclusive for not extending the benefit to ‘other farmers’ or the ‘large farmers’.

Reasons for the formulation of this scheme

(i) The small and marginal farmers have faced greater harm due to the erratic climate conditions in view of the limited technology and capital that they possess; and

(ii) The state seeks to provide maximum benefits with the minimum fund.

State’s submissions

  • by waiving Rs. 5780 Crore worth of crop loans, the number of small and marginal farmers who would be benefitted would be 16,94,145. On the other hand, waiving the crop loan of Rs 1980 Crore that the other farmers held would only benefit 3,01,926 of them. Hence, providing the benefit of the scheme only to marginal and small farmers leads to maximum utility for minimum investment.
  • 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 consumption expenditure of marginal and small farmers exceeds their estimated income by a substantial margin, and the deficits are covered by borrowings. 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. It was found that almost 40% of the irrigated land of large farmers was from canals, while less than 25% of the land of small and marginal farmers was irrigated by canals or borewells and they often resort to renting water from larger landholdings.
  • the percentage distribution of the indebted agricultural households depicts that 27% of the households that hold between 0.01- .040 hectares of land; 34% of those who hold between 0.40-1 hectares and 20% of those who hold between 1-2 acres, are indebted. On the other hand, only 4.5% of those who hold 4-10 hectares and 0.6% of those who hold 10 plus hectares are indebted.


Introduction of Scheme in pursuance of electoral promise – Effect

The High Court had taken the view that because the scheme was in pursuance of an electoral promise, it is constitutionally suspect. This view was made on an assumption that no study must have been conducted before the electoral promise was made.

The Supreme Court, however, noticed that it is settled law that a scheme cannot be held to be constitutionally suspect merely because it was based on an electoral promise. A scheme can be held suspect only within the contours of the Constitution, irrespective of the intent with which the scheme was introduced.

Why is the application of the impugned scheme to only the small and the marginal farmers justified?

The Court noticed that the purpose of providing a waiver of agricultural loans for farmers is to uplift the distressed farmers, who have been facing the brunt of the erratic weather conditions, low produce, and fall in the prices because of the market conditions. The objective of promoting the welfare of the farmers as a class to secure economic and social justice is well recognized by Article 38.

The percentage distribution of the indebted agricultural households also depicts the poverty that envelops the class of small and marginal farmers.

Hence, the scheme propounded by the State of Tamil Nadu passed muster against the constitutional challenge for the following reasons:

  • 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
  • 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. Therefore, the Percentage Distribution of Indebted Agricultural Households < 0.01 0.40 – 1.00 1.01 – 2.00 2.01 – 4.00 4.01 – 10.00 10.00 + classification based on the extent of landholding is not arbitrary since owing to the inherent disadvantaged status of the small and marginal farmers, the impact of climate change or other external forces is unequal.

[State of Tamil Nadu v. National South Indian River Interlinking Agriculturist Association, 2021 SCC OnLine SC 1114, decided on 23.11.2021]

*Judgment by: Justice Dr. DY Chandrachud

Know Thy Judge| Justice Dr. DY Chandrachud

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