Modi plans mother of all farm loan waivers as I-Day gift

Tags: News
Ahead of assembly elections in Gujarat and Karnataka, the prime minister’s office is believed to have directed the finance ministry to study the whole issue of farm loans and work out a formula by which the government is able to announce a waiver scheme around August 15.

BJP’s victory in Uttar Pradesh this year has been attributed partly to the debt waiver promise made to farmers ahead of elections. The UPA returned to power at the Centre in 2009 on the back of a farm loan waiver that cost the government about Rs 70,000 crore.

Now that the chorus is getting louder for waiver in many other states after it was announced by the newly elected UP government, the Centre is looking the issue afresh even as it has rejected the demand publicly, sources said.

“With so much of demand and a real distress engulfing farmers, the government has to show flexibility. But the real problem is with finance – how much can be allotted,” a source said. The finance ministry will now work out a formula, which can be feasible financially without giving much burden to taxpayers, he added.

There are several options being discussed that include writing off interest and deferring the principal amount for 2-3 years, sources said.

The Reserve Bank governor Urjit Patel has already warned that fiscal situation could slip out of hand and stoke inflation if states keep indulging in this type of profligacy. State Bank of India chief Arundhati Bhattacharya had also flayed loan waiver schemes.

“The risk of fiscal slippages, which by and large can entail inflationary spillovers, has risen with the announcements of large farm loan waivers,” the RBI said in its second bi-monthly monetary policy review for 2017-18 announced last week.

A number of farmers’ associations joined hands last week under one umbrella -- All India Kisan Sangharsh Coordination Committee -- and announced a countrywide agitation starting from Mandsaur in Madhya Pradesh from July 6 to end in Champaran in Bihar on October 2. The panel decided to limit the demand to two– waiver of all farm debts and implementation of the Swaminathan panel recommendation on MSP.

The violence in farmers’ agitation in Madhya Pradesh that led to death of five people in police firing has turned the political heat at the Centre with both the BJP and the Congress accusing each other. While in Maharashtra, the agitation has been called off after the promise of debt waiver, the MP government has been clamping down on agitators with an iron hand so that Mandsaur like incident is not repeated.

The MP government is also mulling a plan to waive interest on loans of about 6 lakh farmers who have defaulted. But it has been delayed since the Centre is planning a similar scheme. The farm loan waiver weighs high on the government’s agenda because of the assembly polls in Gujarat, Karnataka and four other states slated for next year.

Earlier this month, finance minister Arun Jaitley had categorically said that the Centre would not share financial burden of such doles. "I have already made the position clear that states which want to go in for these kind of schemes (farm loan waivers) will have to generate them from their own resources. Beyond that the central government has nothing more to say," Jaitley had said.

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