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LATEST NEWS UPDATES | Economy will decelerate if States resort to farm loan waivers

Economy will decelerate if States resort to farm loan waivers

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published Published on Aug 13, 2017   modified Modified on Aug 13, 2017
-The Hindu Business Line

Total burden could swell to Rs. 2.7 lakh cr

New Delhi:
Farm loan waivers could be detrimental to the economy as they could reduce aggregate demand by 0.7 per cent of GDP, imparting a significant deflationary shock to the economy, the Survey said.

There is visible farm stress, even though it is not as widespread as it is made out to be, the Survey said, adding that the drastic decline in farm revenues was nothing short of mystery.

If all State Governments resort to farm loan waivers, like the five States that had announced them, the aggregate demand would come down by Rs. 1.1 lakh crore.

So far, only Karnataka, Maharashtra, Punjab, Tamil Nadu and Uttar Pradesh have announced crop loan waivers for the farmers. If other States were to follow suit, the total loan waivers could top Rs. 2.7 lakh crore, the Survey said.

With the Centre categorically stating that it would not assume any responsibility for loan waivers, the States might have to finance the waivers on their own. But, most States are not in a position to absorb the additional burden arising out of the waivers because of their already squeezed fiscal space, it said.

This is because their spending is influenced by their need to respect the Fiscal Responsibility Legislation targets. “If they assume higher debt, they will in many cases need to cut other spending (or increase taxes). Once these spending changes take place, there will be second-round effects,” the Survey said.

One of them would be the subdued aggregate demand. The survey estimated that the cumulative reduction in aggregate demand would be Rs. 9 lakh crore.

A portion of this would be offset by public sector banks as they would be able to take non-performing farm loans off their balance books. This would help them to provide additional financial resources to the private sector, leading to greater spending, according to the Survey.

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The Hindu Business Line, 11 August, 2017, http://www.thehindubusinessline.com/economy/economic-survey-agriculture-farm-loan-waiver-states/article9814390.ece?homepage=true


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