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12 Jun 2017

The loan-waiver mountain - Centre warned of disastrous consequences of blanket write-off as Maharashtra apes UP and agrees to farmers' demand

Madhya Pradesh chief minister Shivraj Singh Chouhan
 ends his fast by drinking juice in Bhopal on Sunday. (PTI)
Jayanta Roy Chowdhury, TT, PTI, 11 June, New Delhi: If the Narendra Modi government caves in and grants a nationwide farm loan waiver, the tab could surge to a whopping Rs 3 lakh crore, dwarfing the UPA's initiative in 2008 that cost a little over Rs 52,000 crore. 
"We have warned that the exchequer will go bust if we grant a general amnesty on farm loans, which will cost over Rs 3 lakh crore," a senior finance ministry official said. 
A loan waiver announced by the new BJP government in Uttar Pradesh has triggered a clamour for similar relief from several states. Today, the BJP-led government in Maharashtra formally announced it would write off loans taken by farmers, following which they called off a strike.
It was not clear how much the latest waiver would cost. A joint committee of officials and leaders of farmers will work out the details.
Last week, when the Maharashtra government had offered to write off unpaid loans amounting to Rs 30,500 crore, the farmers had insisted on a waiver of all loans, totalling Rs 36,000 crore. Today, the farmers accepted the new offer and one leader claimed that all loans would be waived.
The Union finance ministry has held several rounds of talks on loan waivers but the nub of it is that the Centre has refused to pick up the tab: it wants the states to pay the bounty out of their own resources.
The Reserve Bank has already backed the government's stand, contending that any farm waiver largesse will be hugely inflationary and restrict the central bank's wiggle room to cut interest rates.
But political compulsions have often smothered economic prudence in the past and officials fear they may be forced to "go under the scalpel".
"We are not sure what decision will finally emerge," a finance ministry official said, amid growing restiveness in the country's farmlands over the increasing disconnect between government statistics that show the agriculture sector growing at a pacy 4.9 per cent (0.7 per cent in 2015-16) and the stark reality on the ground where farmers are unable to pay their debt because of the measly returns they get on their produce.
The situation has become deeply embarrassing for the Narendra Modi government, which had grabbed Lal Bahadur Shastri's powerful slogan of the sixties - Jai Jawan, Jai Kisan - to wrap its message to farmers ahead of the Uttar Pradesh elections and has continued to use it extensively since.
Soon after the BJP won the Uttar Pradesh elections, the Centre had, partly to live up to its commitment to being pro-farmer, agreed in an unprecedented move to underwrite a farm loan waiver worth Rs 36,000 crore announced by new chief minister Yogi Adityanath.
"We had expected rational policies from this government... but their loan waiver move was a case of aa bael, mujhe maar (an open invitation to be gored by a bull). The government is now facing similar demands from all over," said M. Govinda Rao, economist and former member of the Prime Minister's Economic Advisory Committee. "Fiscally, this could be disastrous for them."
The Modi government has promised to cap its fiscal deficit at 3.2 per cent of the gross domestic product in 2017-18 - or Rs 546,532 crore. An addition of Rs 3 lakh crore on account of the farm loan waiver would send the fiscal deficit surging to over 5 per cent, harking back to 2011-12 when it leapt to 5.7 per cent.
"This (the Uttar Pradesh loan waiver) has now triggered a tsunami of 'me too' demands from farmer organisations across several states. All of them want the Centre to either announce a general loan waiver for the whole country or underwrite their loan waivers," an official said.
Punjab's newly elected Congress government is among those that have recently asked for the Centre's support for a farm loan waiver, added officials.
Raju Shetty, the leader of an agrarian movement in Maharashtra, had told The Telegraph in a telephone interview before the waiver was announced today: "We want a loan waiver too; Uttar Pradesh is not the only state where farmers are facing distress. Low prices and the inability of the government to buy at minimum support prices, the high cost of agriculture and the reduced groundwater supplies are all factors that have contributed to the bankruptcy of the farm sector across the country."
After the Maharashtra government announced the waiver, Shetty said he was happy.
"Our issues have been resolved. We have decided to temporarily call off our agitation, including the dharnas scheduled tomorrow and the day after. However, if no satisfactory decision is taken (on the criteria for the loan waiver), we shall restart our stir by July 25," he said.
Another farmer leader, Raghunathdada Patil, said revenue minister Chandrakant Patil had assured them that "all loans" of peasants would be waived.
The state government will be able to pick up the tab only if it drastically cuts capital spending or persuades the Centre to provide guarantees that will allow the state to borrow funds.
Shetty and his colleague Rajesh Tikait, who is spearheading a similar agitation in Madhya Pradesh, are trying to galvanise other farm leaders who had earlier been co-opted into the mainstream parties to take up the cause.
The long-dormant Bharatiya Kisan Union has threatened to use militant tactics that include cutting off food and milk supplies to large cities to ensure their demands are met.
"The Centre has made it clear that it cannot underwrite all state farm loan waivers. But given the precarious condition of state finances and the fact that pressure to implement the Seventh Pay Commission's award will further weaken their finances, it may ultimately boil down to central support," an official said.
The finance ministry is also worried about a growing demand from farmers to bring more crops under the ambit of the minimum support price scheme and raise the existing minimum support prices for crops that are currently covered.
The Centre has already earmarked Rs 107,138 crore as food subsidy to the Food Corporation of India, a substantial part of which will be used to fund its food procurement programme.
Another Rs 38,000 crore will go to the states to partly fund their decentralised procurement of food grain under the National Food Security Act.
The combined food subsidy bill of Rs 1.45 lakh crore underpins the price guarantee scheme for farmers and defrays the state agencies' costs of transporting and warehousing produce.
The summer of discontent that the farmers of Madhya Pradesh and Maharashtra have fanned could deliver a costly blow to the Modi government.
"We have always advocated that the way to make farming remunerative is to increase public investment in agriculture through irrigation projects, rural roads, better marketing, a strengthened cooperative movement and improved soil fertility. However, we do not see much action on the ground. Farmers remain our last priority," Rao said.

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