Farm loan waiver: Politics prevails over economics. What next?
Mumbai city news: While the move is likely to give political advantage to the BJP but it will also adversely impact the state’s economyUpdated: Jul 11, 2017, 09:02 IST
Giving in to the demand by farmers which was backed by its rivals and allies, the Devendra Fadnavis-led BJP government in Maharashtra has finally decided to write off loans of 40 lakh farmers in Maharashtra. The entire loan waiver package is expected to cost the state exchequer Rs34,000 crore.
The Fadnavis government was reluctant to accept the demand for the loan waiver as it would have a huge negative impact on the state’s finances. As the farmers’ protests picked up steam across state, the government promised the waiver by October this year. However, it did not satisfy the farmers’ outfits that were staging the protests. With various organisations unitedly opposing the government with the Opposition parties’ support, the Fadnavis government did not have any other option. It relaxed conditions to fix eligibility of farmers who would get a waiver and decided to clear a debt of 40 lakh farmers.
While the move is likely to give political advantage to the BJP but it will also adversely impact the state’s economy. The extent of this impact is not yet clear. Chief minister Devendra Fadnavis himself said that the state’s economy would be under stress for at least a couple of years.
The government is planning to repay the loans over four years. But it is easier said than done. Maharashtra is already reeling under debt of Rs4.13 lakh crore which is likely to reach Rs4.40 lakh crore by the end of the current fiscal year. The state’s annual budget for the year 2016-17 was Rs2.48 lakh crore. Demonetisation also had an adverse impact on the state’s economy. The revenue deficit was estimated to be Rs4,511 crore by the end of this fiscal. It is likely to shoot up considerably. State government’s revenue from two major sources — real estate sector and excise — is likely to be less than expected. The real estate sector is still in a bad shape. Officials say that the excise duty collection may be affected following clampdown on liquor sale along highways. To make it worse, the state has to shoulder the expenditure on account of revising salaries and payments to its employees on the basis of 7th pay commission recommendations by next year. It will cost the government Rs21,500 crore which the government will divide further to avoid paying entire amount in a year or two. It also has to spend funds to start construction of its two politically important projects—grand memorial of Dr BR Ambedkar at Prabhadevi and the ambitious memorial of King Shivaji in the Arabian sea off Mumbai coast. And after all this, will there be any money left for spending on developmental schemes and projects?
By a conservative estimate the developmental expenditure of the state is likely to be cut by more than one forth across all departments. Considering the government departments never spend the entire amount earmarked for its welfare schemes, it is possible that the actual expenditure on several such schemes will be much less than what is estimated. One can imagine what will be the outcome on the ground.
Fadnavis and his cabinet will face a tough test while running the government. They will have limited funds at their disposal but expectations from them will be high. With the next elections scheduled in 2019 (unless it is held earlier), they will be under political pressure to announce more welfare schemes to appease different sections of voters or increase allocation of certain schemes and projects. It is going to be more than a tightrope walk for them.