The Centre on Tuesday ruled out any waiver of farm loan amid growing demand for such move after Uttar Pradesh government announced a package of Rs 36,000 crore to ease the pain of distressed farmers whose crops failed.
The finance ministry and the National Bank for Agriculture and Rural Development (Nabard) also endorsed the contention of Reserve Bank of India governor Urjit Patel that farm loan waiver was a bad idea.
Political parties have been demanding that the benefits given to farmers in UP be extended to other states such as Haryana, Maharashtra and Tamil Nadu. The contentious issue was also raised in Parliament.
Replying to a lawmaker’s query, minister of state for finance Santosh Kumar Gangwar informed Parliament that the government has no plans to waive farm loans but there are schemes to reduce costs by timely repayment of the amount borrowed.
“There is no proposal under consideration of the union government to waive...loans of farmers of the country,” Gangwar said in a written reply in Rajya Sabha.
Farmers now get crop loans up to Rs 3 lakh at a subsidised rate of 7% interest under a scheme run by the department of agriculture, cooperative and farmers’ welfare.
The scheme also offers an extra interest subsidy of 3% to those farmers who repay their short term crop loan in time, thereby reducing the effective rate of interest to 4% per annum for such farmers.
Besides, lending agencies are instructed to provide relief measures in cases of natural calamities that not only restructures existing crop loans but also extends fresh loans, the minister said.
The benchmark for initiating relief measures by banks has also been reduced to 33% crop loss in line with the National Disaster Management Framework, Gangwar added.
Nabard chairman Harsh Kumar Bhanwala said in Mumbai that farm loan waivers involve a “moral hazard” and such facilities should be targeted only to the needy.
“Debt waivers create a moral hazard from a credit repayment perspective and we cannot have omnibus waivers,” he said.
Every time a debt waiver is announced, it is taxpayers’ money which is used to bail out the farmers, he pointed out.
On April 6, RBI governor expressed strong displeasure over farm loan waiver saying it was a bad idea given the government’s resolve to cut budget deficit.
“The general government deficit, which is high by international comparison, poses yet another risk for the path of inflation, which is likely to be exacerbated by farm loan waivers,” he had said.