Rural Loan waiver: Political expediency at the cost of fiscal consolidation

Lalit Shastri

Even though farm loan waiver hampers fiscal consolidation it is considered politically expedient and touted as an essential solution to untimely deaths and suicides by farmers in India.
After the National Front government, headed by V.P. Singh, had implemented a debt relief scheme in 1990, the UPA-I headed by Manmohan Singh implemented the agricultural debt waiver Scheme just before the 2009 Parliamentary election. In 2014, Andhra Pradesh and Telangana implemented their loan waiver schemes and two years later Tamil Nadu also followed suit.
In 2017, BJP governments in Maharashtra and UP, as well as the Congress Government in Punjab took the same road and went for the populist loan waiver scheme. The same year, even the Congress Government in Karnataka had announced the waiver of crop loans extended by cooperative institutions.
Earlier, In the run up for the 1990 Assembly election in Madhya Pradesh, the BJP had announced that once they come to power, all rural loans shall be waived. The BJP had done this showing zero regard to the fact that no government’s financial policy recognises or rewards a defaulter. Populism brought its dividends and the BJP came to power in MP riding on the crest of popularity due to the loan waiver plank in 1990.
During electioneering for the just concluded Madhya Pradesh Assembly election, the Congress party took the same position and capped its election campaign with the rural loan waiver promise. Kamal Nath was prompt in signing the order for waiving farmers’ loans up to Rs 2 lakh immediately after being sworn-in as chief Minister.
Addressing a public rally at Ghazipur in the Varanasi division of Uttar Pradesh earlier this week, Prime Minister Narendra Modi trained his gun at the Congress party and said that the “lollipop company” has repeatedly cheated the people on the farmer’s loan waiver promise.
Obviously keeping the forthcoming Parliamentary elections in focus, Modi said on this occasion that populist announcements cannot provide a permanent solution to problems confronting the nation. After the change of governments in these states, black marketers are everywhere and people are waiting in queues for fertiliser and urea.
Modi further said that the Congress party, after “stealing votes” in Karnataka, has given the benefit of rural loan waiver to only 800 people and those who have not got the benefit of the loan waiver scheme are now being haunted by the police for recovery of dues.
The Prime Minister’s assertion that only 800 have benefited from Karnataka Government’s rural loan waiver scheme was not backed with corroborative evidence.
The Prime Minister’s pointers at Ghazipur notwithstanding, the fact remains that the major political parties across the board have used the loan waiver plank to remain riveted to power.
The BJP had promised in 2014 that if NDA came to power it would give MSP (Minimum Support Price) to the farmers by adding 50 per cent profit into the input cost. While the follow up on this remains a far cry nothing significant has been achieved when it comes to regulating the farmers’ liabilities by controlling input costs, maintaining regular power supply and creating the infrastructure, and a robust network of warehouses, temperature controlled supply chain, and the right kind of system for providing proper extension services to the agriculture sector.

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