Farm loan waiver could cost Punjab Rs10,000 crore

New Delhi: The waiver of crop loans of over a million small and marginal farmers in Punjab is likely to cost the state government around ₹ 0,000 crore. However, in the budget presented on Tuesday the newly-elected Congress government has allocated ₹ 1,500 crore for the farm loan waiver.

“The farm loan waiver is likely to cost the state Rs10,000 crore,” said an official aware of the development requesting anonymity. He added that the fine print is likely to exclude taxpayers and those with government jobs.

“Further the government will use Aadhaar (unique identification number) to prevent any duplication while settling unpaid loans,” the official said. It is also likely that the government will first waive loans taken from cooperative banks and then move on to commercial banks with which it will directly negotiate a settlement, he added.

On Monday, Punjab became the third state after Uttar Pradesh and Maharashtra to announce a waiver of farm loans, amid continuing protests by farmers across the country. In April, the newly elected Uttar Pradesh government announced it will waive Rs36,359 crore of crop loans of 21.5 million farmers, following a pre-poll promise made by Prime Minister Narendra Modi.

Earlier this month, after a strike by protesting farmers crippled food supply to major cities, the Maharashtra government announced it will waive Rs30,500 crore of loans taken by 3.1 million small and marginal farmers (owning less than 5 acres of land).

While both Maharashtra and Uttar Pradesh ruled by the Bharatiya Janata Party (BJP) announced waivers of up to Rs1 lakh per farmer, the Punjab government ruled by the Congress party went a step ahead and doubled the amount of waiver to Rs2 lakh for 1.03 million small and marginal farmers, literally setting in motion competitive politics on loan waivers.

“After Punjab waived off loans, will Haryana farmers sit idle?” asked Siraj Hussain, former agriculture secretary and a visiting senior fellow at Delhi-based Indian Council of Research on International Economic Relations. He added that many small farmers are not covered by institutional credit and waivers tend to help those who are already benefiting from state procurement under price support.

“A way out could be that the NITI Aayog engages with states and bring out a policy document on waivers and why it should be best avoided,” Hussain said. “The problem is farmers are watching closely and they want to see how corporate NPAs (non-performing assets) are treated, whether defaulting corporates are punished,” he added.

The situation is likely to worsen with farmers in states such as Haryana, Madhya Pradesh, Gujarat and Rajasthan also demanding a waiver after low crop prices dented their incomes. Three states—Gujarat, Karnataka and Himachal Pradesh—go to the polls in the next one year and political parties could promise more waivers during their campaigns.

Other than these three states which go to the polls in the first half of 2018, terms of the Chhattisgarh, Madhya Pradesh and Rajasthan governments expire in January 2019, a year when general elections are likely to be held.

States such as Karnataka, Rajasthan, Madhya Pradesh, Kerala and Tamil Nadu are vulnerable to a domino effect of loan waivers in other states due to their low farm income and higher debt profile, Citibank said in a research note on Tuesday.

Farm loan waivers to small and marginal farmers in the run-up to the 2019 polls can total 2% of India’s GDP, according to a Bank of America-Merrill Lynch research report released this week. “We expect almost all states to write off about $40 billion of farm loans in the run-up to the 2019 general elections following the ruling BJP’s UP and Maharashtra governments’ waivers,” it said.