Farm loan waivers could lead to fiscal slippages: RBI Governor

RBI governor Urijit Patel once again criticised decision by various state governments to waive farm loans stating that these kind of moves could lead to fiscal slippages and inflationary spillovers.
 
"Farm loan waivers can lead to fiscal slippages, undo work on fiscal deficit done over last 2 years," Patel said in the post policy briefing.

The MPC after its 2-day meeting also took on board the issue of farm loan waiver and its impact on inflation. "The risk of fiscal slippages, which, by and large, can entail inflationary spillovers, has risen with the announcements of large farm loan waivers," the resolution of the MPC stated.
 
Uttar Pradesh Chief Minister Yogi Adityanath had recently decided to announce a waiver for crop loans upto Rs 1 lakh, a move which was likely to cost the state over Rs 36,000 crore. Post this move, farmers in Maharashtra have been vouching for a waiver. Farmers have also started protests in Madhya Pradesh seeking loan waiver.
 
In the post policy briefing after the first bi-monthly monetary policy, RBI governor had came down heavily on farm loan waivers. "I think it (farm loan waiver) undermines an honest credit culture, it impacts credit discipline, it plugs incentives for future borrowers to repay. In other words, waivers engender moral hazard. it also entails at the end of the day transfer from tax payers to borrowers," Patel had said on 6 April, 2017.
 
Patel also stated that loan waiver could lead to crowding out of private borrowers and have an impact on the country's balance sheet. "If an account of this (farm loan waiver), overall government borrowing goes up, yields on government bonds are also impacted. Thereafter it can also lead to crowding out of private borrowers as high government borrowing can lead to an increase in cost of borrowing for others," Patel had stated.