The Reserve Bank of India on Wednesday cautioned against rushing to provide farm loan waivers as it could lead to ‘fiscal slippages’ and inflationary spillovers. In a statement to the media, RBI Governor Urjit Patel struck a cautionary tone when he said farm loan waivers can undo work on fiscal deficit done over the last two years. “Farm loan waivers can lead to fiscal slippages, undo work on fiscal deficit done over last two years,” said Patel. In fact, in April earlier this year, Patel drove home the point that a farm loan waiver “undermines an honest credit culture” and could “affect the national balance sheet”.
His remarks come in the backdrop of a slew of farm loan waivers granted or promised by various state governments in the country even as protests by farmers in Maharashtra, Tamil Nadu and most recently, Madhya Pradesh are underway. The most recent farm loan waiver came from Uttar Pradesh Chief Minister Yogi Adityanath who decided to waive loans amounting Rs 36,359 crore taken by around 94 lakh small and marginal farmers in the state, thus fulfilling one of BJP’s main pre-poll promise. Maharashtra Chief Minister Devendra Fadnavis also affirmed that the state government will introduce a farm loan waiver before October 31, 2017. According to Maharashtra government’s waiver plan, nearly 1.07 crore farmers who own less than five-acre land holding would be eligible for the same.
Last year, former chief minister of Tamil Nadu J Jayalalithaa had also waived off loans of at least 16.94 lakh small and marginal farmers who own less than five acres of land. The decision, in effect, imposed a financial burden to the tune of Rs 5,780 crore on the state government.
According to a report released by a global banking group, various state governments are likely to waive off at least USD 40 billion, or Rs 2,57,000 crore of farmers’ loans in the run up to the 2019 Lok Sabha elections. As per the Bank of America Merrill Lynch (BofA-ML) report, farm loan waivers will amount to at least 2 per cent of gross domestic product (GDP) by the 2019 polls.