Here’s how much fiscal deficit will widen if Modi gives farm relief package ahead of election, Fitch reveals

By: |
Published: January 17, 2019 3:22:21 PM

It may be noted that several state governments have declared farm loan waiver worth Rs 1.88 lakh crore since April 2017, with analysts predicting a total waiver of Rs  2.75-3 lakh crore by 2019 general election.

 In the ongoing financial year 2018-19, the fiscal deficit is expected to rise to 3.5% of GDP compared to budgeted 3.3%.

India Ratings and Research (Ind-Ra), the Indian arm of Fitch Group, expects India’s fiscal deficit to go up by 70 basis points in the financial year 2019-20 if the Narendra Modi-led government decides to roll out a relief package for small and marginal farmers in the country. In the ongoing financial year 2018-19, the fiscal deficit is expected to rise to 3.5% of GDP compared to budgeted 3.3%, it added.

“There is also a likelihood of a fiscal package for distressed farmers in the FY20 budget. In case the government decides to pay Rs 10,000/acre/year to small and marginal farmers, under ceteris paribus condition, this will push fiscal deficit of the central government by 72bp in FY20. Though not an easy option, if opted it will delay the rate cut process,” it added.

It may be noted that several state governments have declared farm loan waiver worth Rs 1.88 lakh crore since April 2017, with analysts predicting a total waiver of Rs  2.75-3 lakh crore by 2019 general election. The latest to announce such debt relief were Congress-led Madhya Pradesh, Chhattisgarh and Rajasthan.

ALSO READ: Why KALIA may be better option than loan waiver in supporting big, small farmers

Some media reports recently said that the government is considering several options to provide relief to distressed farmers in the country, including a direct payment of Rs 10,000 per annum to farmers for the purchase of seeds, fertilizers and agricultural machinery, ahead of the election to be held in May this year.

This is quite similar to Odisha government’s farm model. The state government of Odisha is offering Rs 10,000 per year to all landholder, landless farmers for buying seeds, fertilisers. Besides, Telangana government also announced Rythu Bandhu investment support scheme for farmers in June last year, under which a grant of Rs 4,000 per acre per farmer is provided each season for the purchase of inputs like seeds, fertilizers, pesticides, labour and other investments in the field operations of farmer’s choice for the crop season.

Meanwhile, the current account deficit of the country, however, may drop to 1.9% of GDP in fiscal 2020 from 2.2% of GDP in fiscal 2019, on the back of softening crude oil prices, Fitch added. The rupee against US dollar is also expected to average 71.36 per US dollar in fiscal 2019-20.

Get live Stock Prices from BSE and NSE and latest NAV, portfolio of Mutual Funds, calculate your tax by Income Tax Calculator, know market’s Top Gainers, Top Losers & Best Equity Funds. Like us on Facebook and follow us on Twitter.

Switch to Hindi Edition