All the three states which announced farm loan waivers, especially the three new Congress governments formed in the Hindi hearltand states last month, lack the fiscal space to do so, a report said Wednesday. Madhya Pradesh, Rajasthan and Chhattisgarh have “low fiscal space” to implement the waivers amounting cumulatively to Rs 62,000 crore, a report by Care Ratings said, adding against these states will be having an additional fiscal space of only Rs 3,120 crore, Rs 3,095 crore and Rs 1,195 crore, respectively in FY20. All the three states are likely to implement the measures in fiscal 2020 due to the difficulties posed by the Fiscal Responsibility and Budget Management Act, its chief economist Madan Sabnavis said.
He said MP (Rs 35-38,000 crore of outgo) and Rajasthan (Rs 18,000 crore) will find it difficult to carry out the decision and are likely to spread it over two years, with “compromises made along the way” if the entire money is to be spent at a go. However, the report said Chhattisgarh. (Rs 14,000 crore) is better placed but will still take two years to implement, he added.
The immediate response while cutting down expenditure is a decline in capex which hampers growth prospects, it said, warning that cuts in capex can have an adverse impact on the public investments in agriculture. Since April 2017, the states have collectively announced waivers of up to Rs 2.2 trillion of farm loans, the agency said, adding other states have only been “partially successful” with their implementation.
For next fiscal, Chhattisgarh, Rajasthan and MP will be having an additional fiscal space of only Rs 3,120 crore, Rs 3,095 crore and Rs 1,195 crore, respectively, it said, adding the fiscal space are much lower than the farm loan waivers, it said, pointing out that Rajasthan and MP have announced waivers of Rs 18,000 crore and Rs 38,000 crore, respectively. “Chhattisgarh appears to be relatively better placed as the scheme announced is of a smaller magnitude (about Rs 6,000 crore),” it said.
It can be noted that a slew of economists, including former RBI governor Raghuram Rajan have been voicing concerns on the farm loan waivers claiming they spoil the credit culture and have been appealing political parties to desist from announcing such measures, even though they are popular. Commenting on the states that have announced such waivers earlier, it said Maharashtra will have to walk a tight fiscal path if they have to implement the loan waivers at the earliest, while Karnataka, Andhra, Tamil Nadu and Chhattisgarh will take two to three years as the amount is a small proportion of the farm loan waiver announced.