Another farm loan waiver could hurt government: Experts

By Times Of India on 23 May 2018 | read
BENGALURU: The JD(S) had promised to waive farm loans to the tune of Rs 53,000 crore within 24 hours of coming to power. But chief minister designate HD Kumaraswamy has already indicated that he may not go for it as his party did not get a decisive mandate.

Hailing the move as ‘wise’, financial managers say the populist move would trigger a fiscal deficit, and loan waivers could have a negative effect on banks. “How can we earmark so much money when we are still struggling to fully implement a farm loan waiver of Rs 8,165 crore announced in last year’s budget by the Congress government?” questioned a senior officer of the state finance department.

Former CM BS Yeddyurappa, too, wanted to announce a loan waiver of Rs 1lakh on his first day in office as it was also one of BJP’s major poll promises, but he refrained from doing so after officials started questioning the source of funding for this lofty announcement.

image infographic Karnataka

Ahead of the polls, Siddaramaiah offered a Rs 50,000 loan waiver package to 23 lakh farmers, who had obtained loans from cooperative banks. With total outstanding loans in agriculture crossing Rs 60,000 crore, Kumaraswamy’s first challenge will be to generate Rs 50,000 crore revenue before splurging it on the loan waiver.

“Karnataka’s annual budget this year is around Rs 2 lakh crore. Using one-third of it to waive the Rs 50,000 crore loan is financial suicide. The populist loan waiver would only trigger a fiscal deficit,” said Sadananda Pillai, a finance expert.

Moreover, the JD(S)-Congress coalition will come out with a common minimum programme and make a joint announcement. This would make the task more difficult for Kumaraswamy, who is likely to hold the finance portfolio as the Congress may not allow JD(S) to override some of its flagship schemes presented by Siddaramaiah.

In fact, Siddaramaiah had waived loans of farmers taken from cooperative banks, and then dared the Union government to waive loans farmers had taken from nationalised banks to the tune of over Rs 50,000 crore. The former CM’s logic was that without the financial backing of the Union government, the state government would not be able to waive these loans.