For the second time in two months, the Reserve Bank of India (RBI) has raised concerns at what is financially imprudent, though politically rewarding. The issue is waiver of farm loans running into thousands of crores owed by lakhs of farmers.
On Wednesday, after the conclusion of the two-day meeting of the RBI's Monetary Policy Committee (MPC), the issue found a prominent mention in the statement released by the bank. "The risk of fiscal slippages, which, by and large, can entail inflationary spillovers, has risen with the announcements of large farm loan waivers," the MPC said.
In April, days after Uttar Pradesh Chief Minister Yogi Adityanath announced waiving off farm loans worth Rs 36,359 crore, RBI Governor Urjit Patel expressed concern. "Farm loan waiver undermines honest credit culture, impacts credit discipline," Patel said on April 6 after the conclusion of the first two-day meeting of the RBI's Monetary Policy Committee.
The total exposure of commercial banks in the form of farm loans in Uttar Pradesh stood at Rs 86,241.2 crore, at an average of about Rs 1.34 lakh per farmer, according to Soumya Kanti Ghosh, an economist at State Bank of India. The amount waived amounts to about 10 per cent of Uttar Pradesh government's estimated revenues for FY2017 at Rs 3,40,255.24 crore.
In Maharashtra, the announcement by Chief Minister Devendra Fadnavis to write off loans worth Rs 30,000 crore did not cut ice with farmers.
"We are working to fulfil Munde's dream of serving the poor. We have announced the biggest-ever loan waiver to give relief to distressed farmers," Fadnavis said in a late evening tweet.
"Of the state's 1.36 crore farmers, 31 lakh have not been able to access crop loans since 2012. Restructuring of loans for this segment was not permissible, therefore, the only way forward was to write-off their loans," the Maharashtra CM added.
Farm loan waivers to hit new high
BofA Merrill Lynch Global Research, in a report two days ago, said that the quantum of agricultural loans waived by various states could reach record levels by mid-2019. "We grow more confident of our call that farm loan waivers will spread across States after Maharashtra followed Uttar Pradesh in waiving farm loans on Saturday. This begs the question, how much of farm loans will eventually get waived? ~$40 billion/2 percent of GDP, in our view, in the run up to the 2019 general elections," it said in its update.
"This covers bank loans to farmers with up to 5 acres of land... will it impact credit culture? It is bound to, in our view, although we recognise that a good part of farmer debt arose on rural stress from poor harvests," it added.
Karnataka also demands
The clamour for writing off loans taken by farmers is growing, with the Bhartiya Janata Party (BJP) demanding that the Congress government in Karnataka waive off farm loans, failing which they will resort to protests. The state foes to polls next year and farm loan waiver is an election plank that pays off at the hustings.
