Farm loan waiver: States face long road ahead

An uphill task is ahead of state governments that have announced farm loan waivers in the last two years as many of them do not have adequate funds to meet the target.

Faced with a tight fiscal position, it is estimated that as many as nine states will take at least two years to implement their respective loan waiver programmes. The 14th Finance Commission has set a fiscal deficit target of 3% for all the states, and most states are near the mark.

According to a study by Care Ratings, states such as Karnataka, Andhra Pradesh, Tamil Nadu, and Chhattisgarh have additional fiscal space but the amount is a small proportion of the farm loan waiver announced. “Hence, this indicates that the farm loan waiver implementation will take 2-3 years,” the rating agency said in a research note.

Karnataka can spend only Rs 1,405 crore annually on its Rs 34,000 crore loan waiver. The state’s fiscal deficit stands at Rs 40,752 crore.

On the other hand, neighbouring Andhra Pradesh has an additional space to disburse Rs 3,724 crore out of its Rs 43,000 crore loan waiver announced in July 2018. The state’s fiscal deficit is at Rs 24,205 crore of its Rs 27,929 crore target.

As the farm stress is shaping into the primary discourse in the build-up to 2019 elections, pre-election promises of invoking farm-loan waivers and increase in minimum support price (MSP) to attract voters are followed up immediately by governments coming to power addressing the concerns of distressed farmers on bank loans.

As many as nine states have announced farm loan waivers worth Rs 2.25 lakh crore. “Barring Maharashtra, other states which have announced farm loan waivers will have to walk a tight fiscal path if they have to implement the loan waivers at the earliest,” Care Rating says. Maharashtra has an additional outlay of Rs 33,724 crore that can be accommodated in its budget for farm loan waiver.

The progress of recent loan waivers in states of Maharashtra and Karnataka has remained slow and tardy at best. According to the estimates, only 45% of the targeted Rs 34,000 crore has been disbursed in Maharashtra as of 2QFY19 despite the waiver announcement coming in 3QFY18. Importantly, there has been a significant delay in the past seven months.

Progress in Karnataka has been even worse with negligible progress due to procedural delays. Unlike Maharashtra which has given a full waiver of Rs 1.5 lakh, the government in Karnataka has asked banks to take 50% write-off on loans which were classified as NPLs, restructured or have an overdue component.

On a central level, as the Prime Minister Narendra Modi-led government is trying to accommodate a massive dole for the farmers in the wake of poll debacles in three key Hindi heartland states, it’s also staring at a surge in its fiscal deficit ahead of it.

In fact, the analysts are saying that PM Modi’s ambitious Pradhan Mantri Fasal Bima Yojana has also lost the relevance now. The insurance scheme has only been able to attract 10.5 crore farmers in the past two years.