AMID EARLY signs of farmers in Maharashtra starting to default on their farm loans in anticipation of a waiver on the lines of the one announced in Uttar Pradesh, what is adding to the worries of banks and other lending institutions is that the four states where such waivers are under discussion figure on the list of the top five states in terms of agri-credit disbursements. Apart from Uttar Pradesh, Maharashtra, Punjab and Tamil Nadu have seen the maximum agri-credit disbursements in three of the last four years (see box). In the first three quarters of FY17, these four states accounted for 36 per cent of the total Rs 8.08 lakh crore disbursed across 36 states and Union territories. Beyond the overwhelming shadow of these four states on the agri-lending map of India is the worry that periodic farm loan waivers could further deteriorate the credit culture, a point that was flagged by the chief of the country’s largest state-owned bank last month. “We feel that in case of a (farm) loan waiver, there is always a fall in credit discipline because the people who get the waiver have expectations of future waivers as well. Such future loans often remain unpaid,” State Bank of India (SBI) chairman Arundhati Bhattacharya had said on the sidelines of an event in Mumbai on March 15. Bhattacharya was echoing worries flagged earlier by former Reserve Bank of India (RBI) governor Raghuram Rajan — that “repeated loan waivers by various state governments distort credit pricing, thereby also disrupting the credit market”. On April 4, at its first Cabinet meeting, the new BJP government in Uttar Pradesh had decided to waive farm loans totalling Rs 36,359 crore, potentially putting pressure on other state governments to follow suit. The decision came on a day the Madras High Court directed the Tamil Nadu government to write off loans of all drought-hit farmers in the state, which would entail an additional burden of Rs 1,980 crore on the state government. On April 6, Maharashtra chief minister Devendra Fadnavis indicated that the state government was favourably disposed towards the demand for a waiver and was “studying” the UP model. Intervening in a debate sparked by strong opposition protests, joined by ally Shiv Sena, Fadnavis said he had asked the state’s finance secretary to get the details of the UP model and find out if it was feasible for implementation in Maharashtra. New Punjab chief minister Amarinder Singh has also promised a waiver of loans to farmers in the Congress-ruled state, and the government has reportedly asked for the Centre’s support. The total farm indebtedness in Punjab, according to a survey done by Punjab Agriculture University, is over Rs 69,000 crore. With Gujarat and Himachal Pradesh due for elections by December, similar demands are likely to be raised in these two states, as well as in Karnataka, Chhattisgarh, Madhya Pradesh and Rajasthan, all of which are due for polls next year. Farm loan waivers invariably tend to follow a cyclical trend, with the biggest such move in recent times being the one in 2008, when the then UPA government had announced a Rs 60,000-crore debt-waiver package for small and marginal farmers in the Budget. This was later extended to the large farmers as well and the amount increased to over Rs 71,000 crore. The first-ever agriculture loan write-off scheme was announced in 1989 during the Janata Dal government’s tenure, that waived loans up to Rs 10,000 issued to farmers, landless cultivators, artisans and weavers by state-run banks.
