Loan waiver: winning election matters and nothing else
New Delhi: The number of default payments for farm loans increases during the elections. It leads to clamour for loan waiver after the polls. Generally it is granted whatever impact it may have on the economic health of the state and the country. It creates a vicious circle. The same thing is repeated after five years.
Parties gain from it. So do a good many individuals. But the agriculture which contributes 15 per cent to the Gross Domestic Product or GDP suffers. The government has less for investment in this sector especially on irrigation which can accelerate growth. It is one of the reasons why most economists have gone hammer and tongs against this populist measure but there is no stoppage to it so far.
Two states, Uttar Pradesh and Punjab, which went to polls recently loudly heard this demand. The ruling party at the Centre, the BJP, which had a larger stake in the former immediately accepted it and promised to waive off farm loans in its manifesto. As is obvious now it had done it without considering the financial health of the state.
The result is that, although it had promised to decide on the issue in the first cabinet meeting , it has not done so even after ten days of formation of the government. The new government is in position to fund the scheme from its own resources. So it is looking at the Centre for special assistance. It may agree for it because the same party rules there too. But this amount could have been gainfully spent somewhere else.
Secondly, if UP is provided assistance under special category, there will be demand by other states including Punjab where loan waiver was also promised. If the Centre refuses there will be discrimination charge and for a valid reason.
Loans to small and marginal farmers who account for more than 90 per cent of the total number of farmers in U P stand at over Rs 27,000 crores which is as much as eight per cent of its total revenue. It will put enormous burden unless the Centre comes to its rescue.
The revised budget estimates of the state for the current financial year has a deficit of over Rs 36,000 crores. Another point to ponder is that it has limited areas for collection of revenue.The areas cannot be increased beyond a point. Another way of additional collection is by raising the rates in the existing areas. Both will be resented by other than farm sectors.
The state is estimated to collect only around Rs two lakh crores during the current fiscal from its own sources. Addition Rs 1.05 crores will be available from the Centre by way of its share in central taxes.
The government in Delhi has a formula to transfer fund to the states. Additional fund may be provided in special cases. It may come to the rescue of the state but by only affecting its own proposals or schemes being implemented.
It is precisely for this reason that economists like former Reserve Bank governor Raghuram Rajan who has gone back to his teaching job in the USA was opposed to loan waiver by states. " It affects credit pricing and disrupts credit market", he had said,
The chair person of the State Bank of India Arundhati Bhattacharya who agreed with him has said that this scheme" affected credit discipline".
However, as Prime Minister Narendra Modi is one of those who has made the promise before the assembly election in the the new government can do nothing but to go with it. But is easily said than done. The government has to decide on many issues besides collection of fund for the same.
There are many among the loan getters who can repay. So, it has to decide which section has to be left out. There was drought in some parts of the state last year. Farmers in these areas had to largely go for loans. There are others who had taken loans before last year and had not repaid due to one calamity or the other. Should they also be covered?
Neither the party nor its leaders seem to have thought well over it before overreaching to farmers.