Loan for votes! Parties promise farm loan waivers, soft pedal after winning elections

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September 27, 2019 5:19 PM

Farm loan waivers: In last five years, political parties announced loan waivers schemes ahead of elections in 10 states, however, after forming the government they have delayed its implementation.

Farm loan, rural distress, bank, bad loan, loan default, bank npas, UP, MP, Karnataka, Maharashtra loan waiver schemePolitical parties have used farm loan waivers to win elections but delayed their implementation.

Politics of farm loan waivers: In the last five years, political parties have announced major loan waivers ahead of state elections to win over farmer’s vote, however, after gaining the power, they have resorted to staggered implementation to reduce the burden on the state government’s finances, a study of farm loan waivers by the Reserve Bank of India has revealed. In Uttar Pradesh, BJP had promised a farm loan waiver ahead of assembly elections in 2017. In Karnataka, both BS Yeddyurappa and HD Kumaraswamy had promised a farm loan waiver before the elections. Similarly, in Madhya Pradesh Kamal Nath had also promised a farm loan waiver to win a tough fight against the incumbent Shiv Raj Singh Chouhan’s government.

However, there was not a single state, where the ruling party has implemented the farm loan waiver in one go after winning the election. In the last five years, ten states have announced farm loan waivers, according to the data collected by the Reserve Bank of India, with the total outlay of Rs 2.36 lakh crore (Rs 2.36 trillion). Karnataka tops the list with the largest farm loan waiver of Rs 44,000 crore, followed by Uttar Pradesh (Rs 36,000 crore) and Maharashtra (Rs 34,000 crore).

Ten states – Andhra Pradesh, Telangana, Tamil Nadu, Maharashtra, Uttar Pradesh, Punjab, Karnataka, Rajashtan, Madhya Pradesh and Chhattisgarh have announced farm loan waivers since 2014-15. However, these states have been implementing them in a staggered manner. This tendency to announce a farm loan waiver and then delaying its implementation has a negative impact on banks as farmers stop repayment of their agricultural loans with the announcement in the hope of benefitting from it. It turns their accounts in NPAs and affects their credit history.

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“Loan waivers, which often happen at the time of elections, are not the panacea to address the underlying risks. In fact, they destroy the credit culture which may harm the farmers’ interest in the medium to long term,” said the RBI in its report.

Secondly, with the staggered implementation, banks only get a part of the total outstanding loan but it also reduces state’s capital expenditure in agriculture sector which in turn forces the banks to extend fresh farm loans.

For example, in 2014-15, Andhra Pradesh government announced a farm loan waiver of Rs 24,000 crore but only half of it was implemented over the next five years. Andhra Pradesh government allocated Rs 4,000 crore in 2014-15, Rs 740 crore in 2015-16, Rs 3,500 crore in 2016-17, Rs 3,600 crore in 2017-18 and Rs 880 crore. However, even after five years, the total budget allocation by the Andhra Government was Rs 12,700 crore, little more than half of the total announcement.

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In 2014-15, KCR government also implemented a loan waiver after winning the first assembly election of Telangana. It announced a loan waiver of Rs 17,000 crore but it was also implemented in parts, Rs 4,250 crore in 2014-15, Rs 4,250 crore in 2015-16, Rs 2,960 crore in 2016-17 and a similar amount in 2017-18, with a total outgo of Rs 14,400 crore against the promise of Rs 17,000 crore.

Similarly, the loan waivers announced by Yogi government in Uttar Pradesh, Fadnavis government in Maharashtra and Karnataka’s loan waiver are at various stages of implementation.

While Yogi government has allocated over Rs 26,000 crore in the last two years, almost two-third of the total loan waiver of Rs 36,000 crore, Kamal Nath government has allocated Rs 5,000 crore and Rs 8,000 crore for the last fiscal and this year that little over one-third of the total announcement. Similarly, Maharashtra government has allocated just Rs 22,000 crores in the last two years against the announcement of Rs 34,000 crore.

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“Loan waivers should be avoided,” said the internal working group of RBI in its report adding that the Centre and states should undertake a holistic view and evaluate the effectiveness of current subsidy polices in a manner which will improve viability of agriculture in a sustainable manner.

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