In the maiden Budget of the Janata Dal (Secular)-Congress coalition government in Karnataka, Chief Minister H D Kumaraswamy (HDK) did a fine balancing act by reallocating the state’s resources towards agriculture by announcing a mega farm loan waiver. The waiver aggregating to Rs 340 billion will provide relief of up to Rs 200,000 to individual farmers.
The scheme will be applicable to only those farmers who have defaulted on payments to the banks up to December 31, 2017, HDK, who also holds the finance portfolio, said.
The entire burden, however, will not be absorbed in the current year as the scheme would be implemented over four years. An amount of Rs 65 billion has been earmarked for this financial year towards its first-phase execution.
The state had announced a similar farm loan waiver of Rs 81.65 billion under the previous regime headed by Siddaramaiah. The current farm loan waiver scheme of the state is over and above the previous waiver plan, taking the aggregate amount to Rs 421.65 billion. This is by far one of the highest farm loan waiver schemes announced by any state government.
According to the Budget document, the total number of loan accounts of farmers who will benefit from the scheme is estimated to be 1.73 million, with outstanding loans amounting to Rs 302.66 billion. The remaining accounts of 2.67 million who have repaid previous crop loans regularly will receive Rs 25,000 in each account as an incentive aggregating to Rs 68.93 billion.
The loans provided on or after April 2009 and outstanding in the books of the banks as on December, 2017 will be eligible under the scheme, the document showed.
Karnataka Chief Minister HD Kumaraswamy after presenting the state budget 2018-19 in the Assembly in Bengaluru on Thursday photo: pti
“I have decided to waive all defaulted crop loans of the farmers made up to December 31, 2017, in the first stage. Due to this crop loan waiver scheme, farmers will get the benefit of Rs 340 billion,” HDK said in his Budget speech.
Uttar Pradesh was the first state last year to announce Rs 363.59-billion farm debt waiver for small and marginal farmers though the ceiling of the waiver amount was capped at Rs 100,000. It was followed by Maharashtra and Punjab. While the total waiver amount announced by Maharashtra was at Rs 340 billion, it was Rs 95 billion in case of Punjab. Rajasthan has also announced a Rs 85 billion worth loan relief.
Commenting on Karnataka’s waiver scheme, D Joshi, the chief economist of rating agency CRISIL, said such waivers would further worsen the fiscal health of states. “States’ finances are already under pressure due to Ujwal Discom Assurance Yojana and the waiver will put further strain on the revenue.
But given the fact that the farm sector had faced pricing issues in the previous years, state governments are resorting to loan waivers as a quick-fix solution.” Whether other states would jump on the bandwagon would depend on the rise in prices of agricultural commodities, he added.
According to Mohandas Pai, former chief financial officer of Infosys, and chairman of Aarin Capital, the farm loan waiver announced by the government will not only deteriorate the fiscal health of the state, it will also divert a major chunk of the revenue which could have been used in many other productive areas like education, skilling or even capital-asset creation.
The Reserve Bank of India (RBI) has time and again flagged serious reservations about the impact of loan waiver schemes on the credit culture of individuals.
“I think the loan waiver schemes undermine an honest credit culture. They impact credit discipline. It (impacts) incentives for future borrowers to repay. In another words, waivers engender moral hazard,” RBI Governor Urjit Patel had said earlier.
