Loan waiver dole populism not a solution in Jaipur: Economists
The state’s outstanding liabilities are 27.57% of its Gross State Domestic Product (GSDP), already above the 25% limit set by the Fiscal Responsibility and Budget Management Act.
The Congress government’s plans for farm loan waiver and unemployment dole has not found favour with economists who say these are mere populist measures and the government needs to address the root cause of the problem.
The government announced Rs 18,000 crore loan waiver for over 40 lakh farmers who have taken loans from cooperative, rural, nationalised and commercial banks. This is 9.1% of the state’s total budget size of Rs 1,97,274 crore for 2018-19.
The state’s outstanding liabilities are 27.57% of its Gross State Domestic Product (GSDP), already above the 25% limit set by the Fiscal Responsibility and Budget Management Act.
The previous BJP government had announced Rs 50,000 loan waiver for 30 lakh farmers costing the state exchequer Rs 8,000 crore. It had budgeted for only Rs 2,000 crore and the Congress will also have to bear the remaining Rs 6,000 crore.
The Congress party has also promised in its manifesto that it will give unemployment dole of Rs 3,500 per month. The currently registered applicants at the employment exchange are 48,8530. So if the government implements the promise, it will cost the state exchequer around Rs 2,100 crore annually.
Jyoti Kiran Shukla, former chairperson of the state finance commission, said, “The implications of these announcements on the state budget are huge and the state has to determine what revenue base it will generate to meet these expenditures. The rate of return to each paise determines the state’s accountability.”
Economists agree that loan waivers or doles are a short-term measure that won’t help farmers or tackle unemployment. They say that reforms are needed at the policy level to address the longstanding issues plaguing farmers as well as unemployment.
To finance the loan waiver and dole, economists say the government will have to resort to borrowing from financial institutions which will lead to an increase in the fiscal deficit and debt servicing will also go up.
Prof VV Singh from the economics department at the University of Rajasthan, said loan waiver can be a one-time activity, not a recurring one.
“Around 25% of the budget will be spent on meeting these poll promises,” he said. The additional spending will result in an increase in the fiscal deficit which is 3.01% of GSDP. “Fiscal deficit rising is not a bad thing per se if the money is spent on capital expenditure. But it should not increase on basis of doles.”
Prof Singh said that the permanent solution to farm distress can be brought about by reforms in agriculture such as setting up cold chains, crop diversification, marketing linkages and ensuring proper prices to farmers for produce.
Economist Nesar Ahmed, coordinator at the Budget Analysis Rajasthan Centre, said, “Loan waiver can be a short-term measure, given the farm distress situation currently. But if reforms are not carried out, the government will face the same situation next year.”
He said the government should decentralise procurement and set-up cold storages and ensure market linkages for farmers.
On unemployment dole, Ahmed said, “Unemployment dole is no solution. It’s just a way to pacify people so they don’t hit the streets. They need to take measures to boost employment.”
He suggested encouraging small and medium industries and cottage industry to create jobs. Prof Singh is of the view that the government has to increase revenue generation by setting up industry and attracting investment.
