Loan waivers,
Most states’ fiscal health leaves little room for manoeuvre
NEWDELHI: Unionfinanceminister Arun Jaitley hinted on Monday that the central government will not help with money for farm loan waivers,underscoringamajoreconomicchallengeforMaharashtra, which promised to write off loans equaltonearly80%ofitsfiscaldeficit,andforatleastfourotherstates facing similar demands.
Maharashtra, Madhya Pradesh, Haryana, Rajasthan and Punjab have witnessed growing resentment in the agriculture sector where stagnant incomes have left millions with piling debt. The crisis has triggered violent protests recently, with a debt write-off a central demand in all the regions.
Protests in Madhya Pradesh left five people dead last week and cultivators in Maharashtra held a more than a week-long agitation that ended on Sunday only after the government agreed to waive off loans for 1.34 crore farmers.
There have also been rumblings in Haryana, Rajasthan and Punjab, weeks after Uttar Pradesh’s new government wrote off ₹35,500 crore in loans to small farmers. “States which want to go for these kind of schemes, will have to generate them from their own resources. Beyond that as the central government, I have nothing to say,” Jaitley said.
An HT analysis shows that if the governments agree to waive off loans, most states will almost double their fiscal deficit and be left with practically no money for welfare projects (see box).
“The waiver will translate into a cut in development spending by 30%”, said a Maharashtra finance department official.
Officials in UP say the loan waiver has led to pruning of allocations of all departments as the Centre was not willing to share the burden. In almost all major agrarian states, the loans of small farmers are close to 80% of the fiscal deficit last year.
The last big farm debt waiver came in 2009, when the UPA government waived ₹72,000 crore before the general election.
In MP the estimated loan waiver for small and marginal farmers with less than 2 hectare of land would cost roughly ₹30,000 crore, or 85% of the state’s agriculture budget.
In Rajasthan, which goes to polls late next year, farmers owe ₹67,500 crore to banks — double the state’s fiscal deficit.
Farm debt here is fast becoming a political issue, with CM Vasundhara Raje facing pressure from the Congress and the RSSaffiliated Bharatiya Kisan Sangh (BKS).
Haryana is also facing pressure from farm unions. They threatened on Monday that they will block national highways if their debt is not written off. NEW DELHI: Retail inflation slumped to a record low of 2.18% in May driven by a sharp drop in kitchen staples like vegetables and pulses, strengthening the government’s case for lowering of interest rates by the RBI.
For the first time since January 2012, food prices saw deflation in May (-1.05%) and the prospect of a good monsoon is likely to keep food inflation in check.
For farmers, the dip in inflation means their produce is not fetching basic price.
The farmers’ agitations across the country in the recent times have been fuelled by the fact that market rates of major pulses and vegetables have slumped in recent years. Inflation apart, industrial output too slipped to 3.1% in April from 6.5% a year ago, possibly because of lagged impact of demonetisation, government data showed on Monday. The worst performing sectors in April were manufacturing, capital goods and consumer durables.
The inflation based on Consumer Price Index (CPI) strengthened the finance ministry’s stand that Reserve Bank of India’s forecast on price rise had errors and there was a case for cutting interest rate to help private investments. Consumer prices rose 2.99% on year in April and 3.81% in March.