Farm loan waiver is one of the most populist poll plank in India for political parties because they bring millions of votes to their kitty. However, the cost of such waivers is so huge that it forces the government to cut the social sector spending. Elucidate.

It has been a trend in the political parties of the poll bound states to announce farm loan waiver in their campaigns and has been attributed high significance to attract the masses. The parties of states of Uttar Pradesh, Punjab and Maharashtra have proclaimed the same and now are looking for ways to cover up the loan wavier schemes expenditure. The overall estimated cost of these schemes in the three states amount to a whopping Rs. 80,000 crores which is almost 0.5% of the country’s GDP 2016-2017.
The schemes are announced and are being implemented in different stages in these states and the burden over the state’s exchequer has been significant. The fiscal deficit is growing beyond the permissible levels hurting the financial levels of the state. To compensate on this, the governments are trying to cut on social sector expenditures. It is the epitome of throwing away good money over the bad. Studies suggest that loan waivers are going to be counter- productive and would turn out to be of little help to the farmers in a longer run.
The states are raising funds for waivers by borrowing from the center. Even though the states don’t have to pay back right away, the burden of interest payment hits right away. To make this happen, the state government is laying back on taking up other infrastructure growth projects. The RBI taking into consideration all these factors, suggested to increase the period of pay back rather than waiving off the loans. This way, the farmer isn’t forced to pay right away and state exchequer wouldn’t be burdened. This will further help in not neglecting development projects for fulfilling the political agenda of campaigns.


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