Mumbai: 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.
Mumbai: 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.
“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.
According to FY19 budget estimates, states have allocated between 0.1% to 0.8% of the respective state domestic product to loan waivers, which ranges between 2.0% to 2.98% of their budgeted gross fiscal deficit.
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 Rs 1.5 lakh crore have been waived off.
“Among the factors responsible for fiscal stress in certain states are farm loan waivers that have been announced since 2014, often justified on the grounds of falling prices of agricultural commodities and recurring droughts,’’ said the report.
Although farmers benefit from the waivers, it becomes a challenge for policy makers as it could fuel inflation.
“If the waivers are not targeted efficiently, coupled with structural productivity constraints in the farm sector, the potential for these waivers contributing to inflationary pressures via higher fiscal deficits remains a key concern,” said the report.
There is no clear evidence on whether such waivers help in increasing farm output or famers’ income, the report said.
“Farm productivity enhancement through pecuniary incentives like debt waivers is unproven” it said.
The government has used 68% of the available pool of financial resources in the form of gross domestic households’ financial savings of about 9% of GDP in FY17 to fund the deficits.
“The consequent crowding out of the private sector has wider ramifications. External debt sustainability has emerged as a corporate sector risk in view of the recent appreciation of the US dollar and US dollar funding gaps” RBI said.
“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.
According to FY19 budget estimates, states have allocated between 0.1% to 0.8% of the respective state domestic product to loan waivers, which ranges between 2.0% to 2.98% of their budgeted gross fiscal deficit.
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 Rs 1.5 lakh crore have been waived off.
“Among the factors responsible for fiscal stress in certain states are farm loan waivers that have been announced since 2014, often justified on the grounds of falling prices of agricultural commodities and recurring droughts,’’ said the report.
Although farmers benefit from the waivers, it becomes a challenge for policy makers as it could fuel inflation.
“If the waivers are not targeted efficiently, coupled with structural productivity constraints in the farm sector, the potential for these waivers contributing to inflationary pressures via higher fiscal deficits remains a key concern,” said the report.
There is no clear evidence on whether such waivers help in increasing farm output or famers’ income, the report said.
“Farm productivity enhancement through pecuniary incentives like debt waivers is unproven” it said.
The government has used 68% of the available pool of financial resources in the form of gross domestic households’ financial savings of about 9% of GDP in FY17 to fund the deficits.
“The consequent crowding out of the private sector has wider ramifications. External debt sustainability has emerged as a corporate sector risk in view of the recent appreciation of the US dollar and US dollar funding gaps” RBI said.