‘Farm loan waiver not a good practice’ ›

Loan waiver is not good for economic or credit culture. Every political party has given it in some state, or at allIndia level. Ultimately it is a political decision, it cannot be justified in longer run. YV REDDY, former RBI governor

NEW DELHI: With the farm loan waiver pitch getting shriller by the day in Punjab and other states, former Reserve Bank of India (RBI) governor YV Reddy said on Monday the practice is not good for “economic or credit culture” and insisted that ultimately it is a political decision and cannot be justified in the longer run.

Another former RBI governor, C Rangarajan, took a similar line, saying the alternative is to offer farmers a longer time to repay.

Reddy noted that every political party in India has offered such waiver in some state or the other or at an all- India level. He was speaking on the sidelines of the Inclusive Finance India Summit.

Rangarajan observed, “First thing to do is waiver of interest payments during the year of distress; second, reschedule the loans so that the farmers will get a longer timeframe for repayment; and, finally, if all these things don’t succeed, then the government should think of farm loan waiver.”

Both the former RBI governors’ remarks assume significance, coming in the wake of such announcements by Punjab, Uttar Pradesh and Maharashtra. Recently, Congress leader Rahul Gandhi too tried a similar pitch during his campaign for Gujarat elections by promising farmers loan waivers if his party forms the government in the state.

In 2008, the government wrote off farm loans to the tune of Rs 74,000 crore.