Why in news?
Chairing his first cabinet meeting, the CM of UP has approved a write-off on outstanding farmer loans of up to Rs. 1 lakh taken before March 31, 2016.
What are the ill-effects?
- The UP cabinet also decided to waive loans worth Rs. 6,000 crore extended to small and marginal farmers that had turned into NPAs.
- Together, this package, aimed at fulfilling the election promise, will cost the exchequer about Rs. 36,000 crore.
- A little earlier, the Madras High Court ordered the TN govt to extend a similar farm loan waiver scheme for small farmers and marginal farmers to all farmers.
- Officials have even been forbidden from trying to recover loans where repayments have slipped.
- The State, which had already doled out Rs. 5,780 crore on this front, would need nearly Rs. 2,000 crore more to comply with the court’s order.
- This is a worrying trend for a country that wants to double agricultural incomes by 2022.
- Not only could it trigger a countrywide clamour for similar debt relief packages, political parties would also be more inclined to make such promises ahead of polls.
- Also, the Madras High Court has clearly reached into the the domain of the executive.
- Forgiving loan burdens is like govts have had little patience to make agriculture a sustainable economic activity with efficient linkages to formal markets.
- Writing off loans as a blanket policy, without scrutiny and restructuring attempts creates a moral hazard for borrowers, who will have no incentive to stick to credit discipline.
- Frequent write-offs will prod banks to invest in alternatives such as the Rural Infrastructure Development Fund instead of reaching out to individual farmers to meet their agricultural lending targets.
Source: The Hindu
