Farm loan waivers risk fiscal slippages, inflation: RBI
RBI ‘s monetary policy review points that the risk of fiscal slippages, which can entail inflationary spillovers, has increased due to large farm loan waivers announced by states
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Mumbai: The Reserve Bank of India (RBI) on Wednesday warned of fiscal situation getting out of hand if states unabatedly continue to waive farm loans saying it also risk spurring inflation.
RBI governor Urjit Patel said that unless state governments’ budgets allow that fiscal space to go in for a loan waiver, it would be risky to tread on that path.
“The risk of fiscal slippages, which by and large can entail inflationary spillovers, has risen with the announcements of large farm loan waivers,” the RBI said in its second bi-monthly monetary policy review for 2017-18.
Patel said that the risk of going down the “slippery path” of waiver could dissipate the important gains that the states made in fiscal rectitude over the last two or three years.
“Past episodes in our country had shown that when there are significant fiscal slippages they do permeate to inflation sooner or later. So, it is a path that we need to tread very carefully and before it gets out of hand,” he said.
On Tuesday, Maharashtra chief minister Devendra Fadnavis had said the government will announce a loan waiver before 31 October and about 1.07 crore farmers with less than five acres of land would be eligible for it.
Earlier, in April, the Uttar Pradesh government had waived farm loans worth Rs36,000 crore, and if Maharashtra implements the waiver scheme, it would cost the state exchequer an estimated Rs30,000 crore.
Farmers in Madhya Pradesh too have been agitating since 1 June seeking loan waivers, higher minimum support prices and other benefits.