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Funding the debt relief

Funding the debt relief

Finance minister P. Chidambaram has finally announced the plans for funding his ambitious debt relief scheme for farmers. Lending institutions will be given cash for the write-offs. An amount of Rs25,000 crore will be given in July this year to the banks and funding will take place over the next four financial years.

As expected, it leaves many questions unanswered. If a new coalition comes to power, why should it be burdened with the dreams of the incumbent FM? As funding is to take place from tax receipts, has the possibility of lower tax growth taken into account?

Chidambaram said the burden on this count will be “only" around 0.25% of GDP. When accounted properly, the increase in revenue deficit will be inexorable and the strain on government finances ruthless. But who cares? With electoral festivals around, these are questions no one wants to face.

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