BUSINESS
Loan waiver schemes being doled out to farmers could have a significant impact on state government finances and pose risk of further fiscal slippages, Fitch Ratings said.
Loan waiver schemes being doled out to farmers could have a significant impact on state government finances and pose risk of further fiscal slippages, Fitch Ratings said.
Four states-- Uttar Pradesh, Maharashtra, Punjab and Karnataka, which account for around one-third of India's population-- have announced farm loan waivers and other state governments are likely to feel pressure to implement similar policies, particularly in states with upcoming elections, it said.
"The farm loan-waiver schemes being discussed and rolled out across an increasing number of Indian states could have a significant impact on state government finances, and might undermine efforts to bring down general government debt," Fitch said in a statement.
Larger state deficits would delay an expected gradual reduction in general government debt, which includes central and state government debt.
"There is a risk that farm loan waivers - which we have not previously factored into our assumptions - will lead to further fiscal slippage at the state level or will reduce the funds available for public investment.
The central government has the authority to block states from borrowing to finance persistently large deficits, but it could be reluctant ahead of approaching elections in some states, with the 2019 Lok Sabha election drawing nearer," Fitch said.
The Centre has gradually consolidated its fiscal position in recent years, and has indicated that loan waivers will have to be funded from state coffers.
"However, the combined finances of the states - which are included in general government debt and deficits - have been under pressure.
Public pay hikes, election spending and higher interest costs stemming from the UDAY scheme - under which state governments have taken on debt from power distribution companies - are all likely to add to expenditure," Fitch said.
However, the impact on India's debt dynamics and capital spending will depend on the total size of loans waived, how the scheme is financed, and whether there are possible offsets from cuts to other forms of spending, including capital projects.
While affirming India's rating at 'BBB-' with stable outlook in May, Fitch forecast general government debt to fall to 64.9 per cent of GDP by fiscal 2020-21, from 67.9 per cent in fiscal 2016-17, and highlighted that potential changes to India's fiscal position are a rating sensitivity.
Public finances are a key weakness in India's sovereign credit profile, with general government debt well above the 'BBB' median of 40.9 per cent and the fiscal deficit of 6.6 per cent of GDP in 2016-17 much higher than the 'BBB' median of 2.7 per cent.
Fitch said banks could also be affected by the waiver schemes.
It will only benefit banks to the extent that they offload farm loans with weak repayment prospects to state governments.
Agricultural loans account for 14 per cent of total bank lending, and are equivalent to around 6.5 per cent of GDP.
"Uniform farm loan waivers could lead to moral hazard and weaken the general repayment culture among financially healthy farmers, but they will still have an incentive to repay loans in order to retain access to future funding," Fitch said.
The last widespread farm loan-waiver scheme was rolled out in 2008 by the central government under the UPA regime, and covered 43 million farmers. It reportedly cost around 1.3 per cent of GDP.
"The combined cost to the states could also become large this time," Fitch said, adding a roll-out of farm loan waiver scheme across much of India is not unthinkable.
Sustainability Takes Center Stage in US Manufacturing with Leader Viralsinh Solanki at the Forefront
How to Crack the CTET Exam in 1st Attempt?
'Trump visits India': Man perfectly mimics Donald Trump's 'love' for India, watch viral video
Manipur: 11 suspected militants killed in gunfight with security forces in Jiribam
Ram Gopal Varma booked for offensive posts against Andhra Pradesh Chief Minister Chandrababu Naidu
Will MrBeast make a video with Virat Kohli? World's biggest YouTuber drops massive hint
This cricketer once walked out to bat with an aluminium bat against England, refused to...
Bigg Boss 18: Rajat Dalal shuts down Vivian Dsena, says 'tera naukar thodi hoon'
Meet actor who cheated on wife with multiple women, got divorced, remarried same woman but...
Aryan to Anaya: Ex-Indian cricketer, coach's son undergoes sex change surgery
Shillong Teer Result OUT for November 11, 2024: First and second round Monday lottery results here
How US Vice President-elect JD Vance found love in Indian-origin Usha Chilukuri, know their story
Maruti Suzuki launches new Dzire: Check price, features of Tata Tiago, Honda Amaze rival
Sebi’s Rs 25 crore penalty plea against Mukesh Ambani dismissed by SC in THIS case
Big blow to former JD(S) MP Prajwal Revanna as SC denies bail in rape case
6,6,6,6,6,4,4,4,4,4: Shubman Gill's MASSIVE 268 runs in Ranji against...
Berjis Desai’s crime thriller “Murder at the Racecourse” keeps you on the edge
'We went totally wrong...': Rohit Shetty opens up on casting Arjun Kapoor in Singham Again
Shah Rukh Khan's Marjaani gets BTS makeover, watch Jungkook, V, Suga's viral dance
'India's finest': Netizens pour in emotional tributes as Vistara readies for last flight today
Vistara to make last flight today before Air India merger, all you need to know
Zomato CEO Deepinder Goyal offers job to X user who suggested THIS BIG change
What is Mukesh Ambani, Nita Ambani's son Anant Ambani's annual salary? Know all about his net worth
Veteran actor Delhi Ganesh cremated with Air Force honours, here's why
'We got the...': Germany grooves to Marathi song Taambdi Chamdi, netizens go berserk; WATCH
Kamal Hassan asks fans to not call him 'Ulaganayagan', says 'this decision comes from....'
'I fell and it went...': Vijay Deverakonda REACTS after video of him falling down stairs goes viral
BIG update on Rohit Sharma's participation in 1st Test against Australia, he is all set to…
Justice Sanjiv Khanna takes oath as 51st Chief Justice of India
Ajay Devgn spills the beans on his 14-year-old son Yug's love life, says 'he is not afraid....'
11/11: Why November 11 is a good day for manifestation? Know how, when you can manifest today
Onion prices rise to Rs 80 per kg: Check rates in Delhi-NCR, Mumbai, Chennai
Guru Purab Bank Holiday November 15: Are banks open or closed on Guru Nanak Jayanti?
Meet Indian genius, world's youngest female Chartered Accountant who secured AIR 1, she is from...
Delhi continues to choke amid rising air pollution, AQI breaches 350...
Avatar 3: New posters of James Cameron's film feature fire tribe, stunning visuals go viral
This country lets male tourists marry women for a few days due to....
Maharashtra polls: Congress suspends seven more rebel candidates
Meet man who quit high-paying job in US, then built Rs 150 crore company in India, his business is…
Viral video: Little girl wins heart with adorable dance to 'aayi nai' song, watch
Queen Elizabeth's 1947 wedding cake slice sold in auction at this SHOCKING price
Viral video: Woman's sizzling dance to 'tere liye' leaves internet drooling, watch
Meet man who leads Rs 185985 crore company as CEO, son of Indian billionaire, he is...
'We don't encourage...': Zomato CEO Deepinder Goyal launches new feature 'Food Rescue' to reduce...
Before Pakistani TikTok star Minahil Malik, actress Rida Isfahani's MMS video leaked online by...
Watch: Virat Kohli gets annoyed at Mumbai airport, asks paps to stay away from…
Watch: David Miller's spectacular one-handed catch shocks Tilak Varma in IND vs SA 2nd T20I
Do you see 11:11? What's the secret behind this number?
'Najar Na Lage': Sidhu Moosewala’s parents perform annaprashan ceremony for chota Sidhu, watch
Baba Siddique murder case: Main shooter, 4 others arrested in UP
Justice Sanjiv Khanna to be sworn in as 51st Chief Justice of India tomorrow