GOVERNMENTS CHEW THE CUD ON FARM LOAN WAIVERS Farm loan waivers to be 2% of GDP by 2019 polls

| Uttar Pradesh announced

farm loan waiver in April Maharashtra CM promises

waiver by

~36,000 crore ~30,000 crore

| | October 31 Karnataka CM asks Centre to help with farm loans Punjab likely to announce

~52,000 crore

| farm loan waiver this month Gujarat Congress promises

farm loan waiver, if voted to power

~24,000 crore

Farm loan waivers will amount to two per cent of gross domestic product (GDP) by 2019 polls as other states may follow the Bharatiya Janata Party’s (BJP) Maharashtra and Uttar Pradesh (UP) governments, says a Bank of America Merrill Lynch (BofAML) report. “We expect almost all states to write off about $40 billion of farm loans in the run up to the 2019 general elections, following the ruling BJP’s UP and Maharashtra governments’ waivers,” BofAML said in a research note. The report said the Ministry of Finance will have to fund farm loan waivers by Ujwal Discom Assurance Yojana-type bonds to limit market impact. On Saturday, the Maharashtra government waived loans of ~30,000 crore/0.2 per cent of GDP owed by farmers with up to five acres of land by October. Earlier, in April, the UP government had announced ~36,000 crore/0.3 per cent of GDP farm loan waiver. The Indian economy is expected to see a consumptiondriven growth rather than investment, and farm loan waivers is likely to add to this trend by stimulating rural demand.

While the farmer agitations are a cause of concern for the BJP as it prepares for sundry assembly polls and 2019 Lok Sabha elections, the Narendra Modi government at the Centre will find it difficult to adopt a piecemeal approach by helping only few states.

Within the party, the BJP Kisan Morcha (farmers’ cell) chief Virendra Singh Mast said he supports farm loan waiver. Congress spokesperson Randeep Singh Surjewala indicated that his party will continue to put pressure on the government on the issue, pointing to the example of United Progressive Alliance-I government’s nationwide farm loan write-off in 2008.

In April, Reserve Bank of India Governor Urjit Patel had termed such waivers a “moral hazard”. In March, State Bank of India Chairman Arundhati Bhattacharya had also disfavoured farm debt write-offs. Finance Minister Arun Jaitley had also ruled out helping state governments with farm loan waiver.

It remains to be seen the Centre’s next move on the issue after unabated farmer protests. Farmers’ organisations are likely to bring their protests to New Delhi during the monsoon session of Parliament in July.