Farm Loan Waiver May Hit India’s GDP by roughly 1%

Since ages, farm loan waiver has been used as a tool to attract the farmers to vote for a particular political symbol. But now it seems the RBI has taken a tough stance on it. In the next few lines, we will learn the effect of the waiver on the Indian economy.

 Why the RBI is in no mood to offer farm loan waiver?

The wave led by UP chief minister Yogi Adityanath, has prompted other chief ministers to ask for farm loan waiver scheme, but the RBI has refused to ease down the norms because:-

If the other states also follow the UP model, the loan waivers at all- India level would rise in between Rs2.2- Rs2.7 lakh crore, thus reducing India’s GDP by 1 percent. Here’s what the founder and managing director of Bandhan Bank have to say about the farm loan waiver scheme.

“Challenges have come from farm loan waiver. The culture of repayment is being impacted. This is one of the reasons why our gross non-performing assets have gone up to 0.82% in the June quarter to 0.22% a year ago.”

Further, the RBI governor, Urjit Patel has forewarned the farm loan waiver could create moral hazard apart from interest rate defaults. The blanket ban waiver scheme would ruin banking system and damage the credit culture.  The economic survey pointed out that

“The actual impact will depend on the number of states that actually decide to grant waivers, and how they distribute them over time.”

Farm loan waiver schemes along with reduced profitability in power and telecom sector would burden the balance sheet, pile up bad debts in the bank, weigh a pressure on the economy and create more NPA’s.

Which other states have announced for a farm loan waiver?

The states like Uttar Pradesh, Karnataka, Maharashtra (also have announced a mobile app for filing applications for farm loan waiver scheme), Punjab and Tamil Nadu have announced for farm loan waiver scheme. But the Supreme Court has not given the green signal to it.

What if the Supreme Court withholds the decision?

Even as the debate furies over the farm loan waiver scheme, the Maharashtra state government has admitted that over 5000 farmers have committed suicide.  Out of these suicides, 721 were committed between March 31 and May 31 this year. Moreover, the incessant heavy rains in Assam, Tripura and Uttar Pradesh has marooned the situation further.  Well, it seems a tough road ahead for the Indian government.