Not surprisingly, given how the Aam Aadmi Party’s electricity largesse was aped by so many other states, Uttar Pradesh’s farm loan waiver has now been emulated by Maharashtra. Chief minister Devendra Fadnavis has announced a Rs 30,000-crore loan waiver, but given how farmers are still agitating for more, it is not clear if he will raise this further. Officials of the state, though, have been quoted as saying they cannot afford even this Rs 30,000 crore and need help from the Centre. Though the Centre will probably tell the state, as it told UP, to fend for itself, it is solely to blame since, during the election campaign, senior members of the BJP’s central leadership including the prime minister promised the loan waiver would be the first decision of the BJP’s state cabinet. Sadly, for Fadnavis, though the state BJP had not included this in its 2014 campaign promise, the pressure for a waiver began after the UP one.
If loan waivers were the lesson from one BJP state, the lessons from another were quite the opposite. Indeed, while most talk of the Gujarat agriculture miracle—10%-plus annual agriculture growth for 10 years in a row—between FY06-FY15, Madhya Pradesh’s agriculture grew 9.7% and, in the last five years, it grew at 14.2%. The policies that made this happen included e-Uparjan which allowed the government to ensure farmers who wanted to sell their wheat were informed about where to bring it by SMS, a zero-interest farm credit where the Nabard subvention was augmented by the state due to which crop loans rose from `33.3 billion in FY07 to `112.1 billion in FY14 and a surge in warehousing capacity thanks to matching of the Centre’s VGF for this, and removing of fruits and vegetables from the APMC monopoly way back in 2012. The biggest reason, however, was more roads, irrigation and government procurement—at one go, the government fixed supply- and demand-side problems. From 24% in FY01, the state’s irrigation ratio rose to 42.8% in FY15, road density from 526.8 km per thousand sq km in FY01 to 742.3 in FY13. From producing 8% of India’s wheat in the early 2000s, MP’s share is around 16% today; and from 13th place in FY11, it is the fourth-largest vegetable producer in the country.
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Maharashtra, to put the MP policies in perspective, has just 18% of its gross cropped area under irrigation. So, at a time when the state should be focusing on investing in irrigation and creating more roads, it is wasting resources on crop loan waivers. What makes the moves all the more unfortunate, especially for other states who end up aping UP, is that state finances have not been as precarious as they are today for a very long time. Consolidated state expenditures have shot up hugely and, according to JPMorgan, state market borrowing is poised to overtake the Centre’s by 2018-19—after narrowing to 2% of GDP between 2010-12, the consolidated state deficit has widened back to 2.8% of GDP (ex-UDAY) in 2015-16 despite the finance commission windfall. According to JPMorgan, the total state deficit for FY17 would be 3.4%, the highest in 13 years versus a budgeted deficit of 2.8% of GDP (ex-UDAY). Given the demands for a Pay Commission hike, the UP, and now Gujarat, farm loan waiver is threatening the fisc and taking away attention from much-needed agriculture reforms and investment.