Modi government has no plan for waiving farm loans

Contrary to earlier reports Modi government denied any plan of waiving-off farm loans. The government told the Lok Sabha that it was not considering any loan waiver scheme as it would affect the credit culture, incentivise defaulters, create a moral hazard and perpetuate demands for further waivers.
In a written reply to Shiv Sena MP Bhavana Gawali Patil, Union Minister of State for Agriculture Parshottam Rupala said “the Union government at present is not considering any loan waiver scheme for farmers.”
Earlier a Reuters report claimed that Prime Minister Narendra Modi’s government is likely to announce loan waivers worth billions of dollars to woo millions of farmers ahead of a general election.
Citing sources the report stated that the government might plan to waive off loans after BJP party suffered a rural drubbing in state polls.
To claw back support among India’s 263 million farmers and their many millions of dependents, PM Modi’s administration would soon start working out the details of a plan allocating money to write off farm loans, the sources said.
With a national election due by May 2019, Modi and the BJP have run out of time to announce other easy, popular measures such as raising the support, or guaranteed, prices for staples such as rice and wheat, farm analysts said.
The reports stated that if Modi government would have approved the farm loans waivers that would widen a fiscal deficit the government has aimed to cap at 3.3 per cent of its gross domestic product (GDP), or Rs 6.24 lakh crore. Even without the farm loan waiver, some credit rating agencies have estimated the country’s fiscal deficit at Rs 6.67 lakh crore – or 3.5 percent of GDP, on muted tax collections.
The loan waiver also risks deepening the malaise at public sector banks saddled with most of India’s $150 billion in stressed loans. If the government finds very limited fiscal space, it could go for loan waivers only in a few geographies that have suffered extreme weather conditions, sources and analysts said.