The benefits?and, therefore, the political capital?from the government?s Rs 60,000-crore debt waiver for farmers announced in Budget 2008-09 may prove more far-reaching than initially thought. That?s because finance minister P Chidambaram has given the Congress-led UPA administration sufficient headroom to widen the scope of its largesse should it choose to do so in the run-up to general elections.
Consider this: the total non-performing loans of all commercial banks, regional rural and cooperative banks, and even that of non-banking financial companies to the agricultural sector totals Rs 64,628 crore as on March 31, 2007. That?s just a shade higher than the debt waiver package.
Clearly, Chidambaram has budgeted for more than just the overdue loans of small & medium farmers. The cumulative borrowing of farmers with assets of Rs 3 lakh or less to all lenders?including moneylenders?is just Rs 23,500 crore, going by the RBI Trend & Progress of Banking in India report. Of this, loans taken from institutional agencies tot up to less than Rs 9,000 crore, as of 2002-03, the latest reported year for such data.
This is just 27% of rural institutional credit that year. So, even if defaults by small & marginal farmers in the interim have climbed to 50% of rural institutional credit, Chidambaram?s waiver would cost him only Rs 42,000 crore. Moreover, should institutional NPAs have risen by another Rs 2,000 crore by the end of December 2007?the cut off date mentioned in the Budget?it wouldn?t make much of a dent in the overall corpus.
Indeed, if that has happened, sub-NPA loans (i.e NPAs and over dues of all rural creditors across scheduled commercial banks, regional cooperative banks and rural banks) would amount to about Rs 84,000 crore. Large farmers owe around half that amount. Adding the 25% write off under the one-time scheme for such large farmers would contribute another Rs 10,000 crore. So, at a total cost of 52,000 crore, Chidambaram and his North Block team have obviously got their math just right.
So, every kind of farm loan taken by small & medium farmers can be written off by the government to make rural India virtually debt-free in time for the general election. And considering the fact that these creditors account for slightly more than 1.62 crore rural households, or almost three-fourths the number of such households that have taken any kind of loan, the political mileage could be huge.