Loan waivers unburden farmers, burden economy: RBI

  • A number of states have waived off farm loans since the general elections in 2014, but while the burden on farmers and their families have reduced, there may be no visible benefits to the overall economy through higher investments in agriculture and improved productivity, a report from the Reserve Bank of India has said.
  • States have to improve the efficiency of their expenses and improve their budgeting for a sustainable growth with fiscal prudence as the last two fiscal years witnessed a sharp deterioration in their finances, according to the RBI.
  • “Farm productivity enhancement through pecuniary incentives like debt waivers is unproven,” said the annual RBI report on State Finances. “Hence, higher fiscal deficits in future may not be offset by higher GDP gains.”
  • Farm loan waivers have become the centre of debate in policy making circles with state after state going for the populist measure to lure voters. Although banks have been spared of the burden of writing off of loans, it has fallen on state governments who have to fund the liabilities through market borrowings.
  • The total debt waiver granted during FY18 amounted to 0.32% of India’s GDP as per revised estimates. It stood at 0.27% of GDP in the budget estimates. Total debt waivers are budgeted at 0.2% of GDP in FY19.
  • Uttar Pradesh, Andhra Pradesh, Maharashtra, and recently, Karnataka have waived off thousands of crores of farm loans on the pretext of poor farm product prices and drought conditions. So far, loans amounting to over INR1.5tr have been waived off.
  • Although farmers benefit from the waivers, it becomes a challenge for policy makers as it could fuel inflation. There is no clear evidence on whether such waivers help in increasing farm output or famers’ income, the report said.
  • Fiscal positions of states are becoming a point of worry for monetary policy committee as they continue to splurge on doles even though the central government has been propagating fiscal prudence.

External Link: https://economictimes.indiatimes.com/news/economy/agriculture/loan-waivers-unburden-farmers-burden-economy-rbi-report/articleshow/64969886.cms

External Link: https://economictimes.indiatimes.com/news/economy/finance/get-fiscally-fit-to-sustain-growth-rbi-tells-states/articleshow/64969816.cms

13-Jul-2018


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