Populist waivers for farm sector vex economists

As the Congress and the BJP rush to outshine each other in announcing massive farm loan waivers, former NITI Aayog vice-chairman Arvind Panagariya has criticised the step as the beginning of  “a sad race to the bottom.” 

He questioned the basics of farm loan waivers, pointing out that the situation of farmers has remained the same despite loan waivers in the last 70 years and it requires some other solutions.

“A sad race to the bottom has begun. If loan waivers would fundamentally alleviate farmers’ plight, waivers would be a welcome step. But if after 70 years of independence, farmers remain in distress, we need to seek different solutions,” tweeted Panagariya.

His comments came soon after Congress president Rahul Gandhi in a jibe at Prime Minister Narendra Modi said, “ We will not let him sleep until loans of all farmers are waived.” 

Panagariya’s worries also being felt by the economists working in the government as they have flagged that the recent loan waivers by the states are going to add a whopping sum to the already outstanding credit to agriculture and allied services which are well above Rs 10 lakh crore.

It is going to have a double whammy impact on the fiscal health of the nation as the NPAs that stood at Rs 3.24 crore in March 2015 has already crossed Rs 10.5 crore and with this additional burden it is almost certain now that the next government that will take over in 2019 will have a very tough task in settling country’s balance sheet, a senior government official said.