Farm Loan Waiver Schemes will Overburden Budgets of the State Governments

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The State Government of five States including Uttar Pradesh, Maharashtra, Punjab, Rajasthan and Karnataka had announced Farm Loan waiver programs during the State Assembly Elections.

It is expected that the implementation of the said schemes across State could affect finances of States which will create misbalance in the economy of the States. The farm debt waivers announced by the five states is aiming to fulfill poll promises and the decision have been taken by the States due to frequent cases of farmers suicides.

What is Farm Loans?

Farm loans is loan given to farmers to provide financial aid to grow in agriculture sector. It may include a crop loan or loans to buy agriculture equipments.

As several states announcing farm loan waiver, there is a fear that the combined figure of fiscal deficit could be worse and it will increase their budgeted figure.

The Farm loan waivers schemes of five states could widen the combined fiscal deficit of the state by Rs.107700 Crores or 0.65 per cent of GDP of current financial year. If this additional expenditure of farm loan waiver is to be met by cutting down other expenses that will misbalance the budgeted capital expenditure of States. These States will have to either create additional resources to pay off farm debts or cut down other expenses to mitigate expenses of farm loans waiver schemes.

The former RBI Governor has also condemned the idea of farm loan waiver by saying that it is political decision and cannot be justified as it is not good for economic and credit future of states. Mr. Rangarajan has opined that instead of waiving farm loans, the Government should expand time to repay these loans or decrease the payment of installment or waive the interest over these loans.

The farm loan waiver will have negative impact over the finances of the States and increase fiscal deficits. Hence, instead of waiving of farm loans, States should adopt alternative helping measures to protect farmers’ interest.

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