Farm loan waiver announcement in the run-up to elections maybe a good strategy to garner votes, but its implementation will be a big task with several State Governments not having the fiscal space to accommodate such waivers, say economists.
At the same time, there are others who argue that this is nothing more than a compensation that the governments ought to pay farmers as it was the lop-sided pricing and trade policies adopted by the government that had hit the farmers in the first place.
Apart from Madhya Pradesh, Rajasthan, and Chhattisgarh, which went to Assembly polls recently, Karnataka and Assam too announced farm loan waivers in 2018. While MP had budgeted a fiscal deficit of 3.3 per cent of GSDP for fiscal 2019 (BE), breaching the FRBM limit, Rajasthan and Assam have estimated their fiscal deficit at 3 per cent, and thus could be at risk.
“States like Rajasthan and MP appear to be close to their FRBM fiscal norm and cannot really make such provisions unless given special dispensation,” Madan Sabnavis, Chief Economist, CARE Ratings, told
It is more likely that States could spread the largesse (farm loan waiver) over years and not a single year, according to Sabnavis. Also, in the past, one had seen that identifying the claimants and reimbursing them had been a challenge, he said.
Jayati Ghosh, Development Economist and Professor at the Jawaharlal Nehru University, in New Delhi, said crop loan waiver was an absolute necessity to make farming viable. “Indian farmers suffered a lot in the last few years mainly because of wrong trade policies adopted by the government and also because they were not given better minimum support prices,” she said.
“The same set of people who didn’t have any problem when corporate loans, which are in multiples of the crop loans, were written off, are now jumping up and down saying the waivers may breach the State’s fiscal targets,” Ghosh said.
Kirankumar Vissa, a national working group member of the All India Kisan Sangharsh Samiti, an umbrella organisation of 200-odd farmer groups, said though he welcomes the move, it would be difficult to know how beneficial it would be for farmers unless one sees the fine-print.
Citing the examples of Andhra Pradesh and Telangana which waived farm loans up to ₹1 lakh each in 2014, Vissa said the farmers benefited only a little as both the States paid the waivers in multiple instalments.
In case the entire farm loan waiver is accounted for in the current fiscal, it may lead to a sharp increase in debt/deficit and/or a sharp reduction in capital expenditure, which will adversely impact the productive capacity/growth potential of the States in the medium term, according to India Ratings.