Farm loan waiver: It’s on you, Jaitley tells States

Finance Minister Arun Jaitley on Tuesday ruled out a farm loan waiver by the Centre despite some States having gone ahead with such a decision to placate the protesting farmers.

“There is no such proposal. We have got an FRBM Act and a fiscal deficit target, and we intend adhering to it,” Jaitley told reporters here, when asked if the Centre too would come up with farm debt waiver schemes.

For 2017-18, the Centre had pegged the fiscal deficit at 3.2 per cent, lower than 3.5 per cent last financial year.

Jaitley’s remarks are a clear pointer to the Centre’s commitment to rein in its fiscal deficit within targeted levels even though several States are giving short shrift to fiscal prudence and are on course to exceed their deficit targets under the FRBM law.

Many States such as Uttar Pradesh, Maharashtra and Punjab have announced waivers.

Jaitley had on June 12 made it clear that the States would have to bear the fiscal cost of such farm loan waiver programmes.

The absence of “fiscal marksmanship in States” in recent times is a topic of intense debate among economists and economy watchers.

An SBI Research note has warned that the farm loan waiver will impact State finances (State fiscal deficit) adversely and highlighted that Punjab will be the worst-hit State. Punjab, which announced a farm loan waiver on Monday, will see its fiscal deficit jump by an additional 4.8 per cent of Gross State Domestic Product (GSDP) in 2017-18, according to the SBI Research note.

The cost of the farm loan waiver for Punjab is estimated at ₹24,000 crore and is expected to benefit one million farmers. For 2016-17,

Punjab’s fiscal deficit as a percentage of Gross State Domestic Product (GSDP) stood at 2.9 per cent.

Meanwhile, the SBI Research note highlighted that the current loan waiver is still a localised problem, even though there is a lurking fear that the demand may grow manifold in other States over time.

The blessing in disguise this time round, according to economy watchers, is that the States, while announcing their farm loan waivers, have capped the amount that would be paid to each farmer.