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States will have to find funds for farm loan waivers, says Arun Jaitley

On Sunday, Maharashtra announced writing off the loans of small and marginal farmers in the face of a 10-day strike by agriculturists demanding, among other things, loan waiver.

india Updated: Jun 12, 2017 23:38 IST
HT Correspondents
HT Correspondents
Hindustan Times, New Delhi
Farm loan waiver,Arun Jaitley,Farmers suicide
Finance Minister Arun Jaitley addresses a delegation while speaking on the Goods and Services Tax (GST) issues during the Vibrant Gujarat investor summit in Gandhinagar, January 11, 2017.(Reuters File )

Union finance minister Arun Jaitley hinted on Monday that the central government will not help with money for farm loan waivers, underscoring a major economic challenge for Maharashtra, which promised to write off loans equal to nearly 80% of its fiscal deficit, and for at least four other states facing similar demands.

Maharashtra, Madhya Pradesh, Haryana, Rajasthan and Punjab have witnessed growing resentment in the agriculture sector where inflation and stagnated incomes have left millions with piling debt. The crisis has triggered violent protests recently, with a debt write-off a central demand among all of them.

Protests in Madhya Pradesh left five people dead last week and cultivators in Maharashtra held a more than a week-long agitation that ended on Sunday only after the government agreed to waive off loans for 1.34 crore farmers.

Similar protests spread to Haryana, Rajasthan and Punjab, weeks after Uttar Pradesh’s new government wrote off Rs 35,500 crore in loans to small farmers.

An HT analysis shows that if the governments agree, most states will almost double their fiscal deficit and be left with practically no money for welfare projects (see box).

“The waiver will translate into a cut in development spending by 30%”, said a Maharashtra finance department official. Officials in Uttar Pradesh say the loan waiver has led to pruning of allocations of all departments as the Centre was not willing to share the burden.

In almost all major agrarian states, the loans of small farmers are close to 80% of the fiscal deficit last year.

The last big farm debt waiver came in 2009, when the UPA government wrote of Rs 72,000 crore before the general elections.

In Madhya Pradesh, home to the bloody farmers’ protest in Mandsaur, the estimated loan waiver for small and marginal farmers with less than 2 hectare of land — similar to the one given in Maharashtra and Uttar Pradesh — would cost roughly Rs 30,000 crore, or 85% of the state’s agriculture budget.

In Rajasthan, which goes to polls late next year, farmers owe Rs 67,500 crore to banks — double the state’s fiscal deficit. Farm debt here is fast becoming a political issue, with chief minister Vasundhara Raje facing pressure from the Opposition Congress and an outfit much closer home: the RSS-affiliated Bharatiya Kisan Sangh (BKS).

Haryana, another BJP-ruled state, is also facing pressure from farm unions. They threatened on Monday that they will block national highways if their debt is not written off. More than half of Haryana’s population is into farming.

Adjacent Punjab, the posteboy of India’s farming revolution, too has been hit by calls for a loan waiver. Here, a million farmers owe Rs 90,000 crore to banks but the Congress government is not in a financial position to absorb such debt considering it has around Rs 2 lakh crore — almost half of its 2016-17 budget — as state debt.

Punjab can, however, reduce its burden if the scheme is extended to the 5.71 lakh small and marginal farmers. It would mean a debt waiver of Rs 9,845 crore. But, national farmer bodies such as Bharatiya Kisan Union (BKU) want a write-off for everyone. The Amarinder Singh-led government is expected to take a decision later this month.

A number of other non-BJP ruled states like West Bengal have no plans to waive farm loans, saying they provide interest-free loans to the farm sector. Officials in Andhra Pradesh, Telangana and Karnataka also said they were not considering any waiver.

(With inputs from state bureaux)

First Published: Jun 12, 2017 14:26 IST