04 Jul 2017 13:06 IST

Economic Survey 2.0 to argue case against farm-loan waivers

To be tabled around July 21; will red-flag their impact on fisc

With the Centre under criticism for not extending financial support to the States for farm-loan waivers, the second volume of the Economic Survey will list out the disadvantages of the move and its impact on the economy.

“We will provide data and calculations to show how the farm-loans waivers will impact not only the finances of the respective States but also those of the Centre,” said Arvind Subramanian, Chief Economic Advisor to the Finance Ministry and the chief author of the report.

Subramanian told BusinessLine that this will be presented as part of the second volume of the Survey that will be tabled in Parliament’s Monsoon Session around July 21. Sources said the issue will be taken up in the Chapter on Agriculture.

To bail out debt-ridden farmers, Maharashtra, Punjab, Uttar Pradesh and Karnataka have announced loan waivers in recent weeks. But worried about balancing the Centre’s finances, Finance Minister Arun Jaitley has said that the Centre will not announce any similar relaxations. “We have got an FRBM Act and a fiscal deficit target, and we intend adhering to it,” he has said, adding that the States will have to fund these programmes on their own.

The last large-scale waiver of farmer loans was done by the UPA government in 2008, when it waived ₹52,000 crore of loans. Officials now point out that it impacted the deficit.

To become more fiscally prudent, the government is also considering the report of an expert panel on FRBM that has favoured a debt-to-GDP of 60 per cent for the General Government by 2023, consisting of 40 per cent for the Central government and 20 per cent for the States.

Two options on waivers

Sources said the States that go in for loan waivers will have two options: to cut expenditure somewhere else or deviate from their fiscal targets, which is not recommended.

“We need to watch the fiscal and ensure that our commitments to education and health sectors are not diluted,” Arvind Panagariya, Vice-Chairman, NITI Aayog, had told BusinessLine recently.

Analysts have also warned of the risks of the farm-loan waiver on fiscal consolidation. “There is a risk that farm-loan waivers... will lead to further fiscal slippage at the State level or will reduce the funds available for public investment,” Fitch Ratings had said recently.

Agricultural loans account for 14 per cent of total bank lending, according to the Reserve Bank of India, and are equivalent to around 6.5 per cent of GDP.

A Bank of America Merrill Lynch report estimated last month that States may waive of ₹2.57 lakh crore of farmers’ loans or 2 per cent of the GDP by 2019.

Recommended for you