Farm Loan Waiver to Deal Crushing Blow to Tottering UP Economy
Financial experts say the Yogi Adityanath-led BJP government will find it hard to bear the burden of loan waivers.
Having waived the loans of marginal and small farmers – as promised in the run-up to the Assembly polls – the Uttar Pradesh government may well find itself carrying an unprecedented financial burden in the days to come.
While officials and ministers in the Yogi Adityanath government insist the "whole thing has been planned well", financial experts say the new Bharatiya Janata Party (BJP) government will find it hard to bear the burden, which will be around Rs 37,000 crore (over $6 billion), especially as it has said that there would be no new taxes levied on the people.
Of the 23 million farmers in the state, 92.5 per cent (about 21.5 million), who are small and marginal cultivators, have been granted a waiver against crop loans up to a limit of Rs 1 lakh each.
The Yogi government has also erased loans of around 7,00,000 farmers who have defaulted and owe lenders Rs 5,630 crore.
‘No Burden on People’ – But Is That Really So?
"There would be no burden on the people, they should remain relaxed," state Finance Minister Rajesh Agarwal said. But the bravado, many fear, c ould be short-lived.
Siddharth Nath Singh, a minister and state government spokesman, has been candid in admitting that the Union government headed by the BJP has already said a firm no to any sharing of the burden following the farmer loan sop.
“We are tied to fiscal discipline, which mandates the states to keep the deficit not above three per cent of its GDP," Singh said citing the FRBM Act passed by Parliament. Other than this, the state government will also have to face the major burden of the Seventh Pay Commission payouts.
The previous Akhilesh Yadav government had to bear the Pay Commission burden for only three months, but it will burn a hole in the pocket of the Yogi government for the whole of 2017-18, and also in the years ahead. This alone involves an outgo of Rs 31,000 crore.
With growing incidence of violence in the state by women over their demands for a liquor-free Uttar Pradesh, the state government's revenue will take a further hit in case it goes for prohibition under pressure.
Fear is looming large in the corridors of power over the shrinking revenue net and hence the loan waiver for farmers is being seen with some apprehension here.
Balancing Economic Prudence and Populism
If all the debts of the Uttar Pradesh government are taken into consideration, an official said, the state is reeling under an unprecedented debt of Rs 375,049 crore – a whopping 30.3 per cent of the state's GDP.
"The financial system of the state and economic planning have been a complete mess in the past decade and it will take a lot of time to manage them, forget about surviving fresh blows like the loan waiver," a senior bureaucrat said.
The state says it has an answer: Raise funds to cover for the loan waiver through a Kisan Relief Bond. The modalities of the bond are being worked out and it would be cleared during the forthcoming budget session of the state Assembly. Even so, a tough litmus test awaits the Yogi government as it treads delicately between economic prudence and populism.
Politically, the opposition parties are questioning the decision of the BJP government, saying it made a mockery of the pain being felt by the farmers. Former Chief Minister and Samajwadi Party (SP) president Akhilesh Yadav has called it a "farce perpetrated on farmers".
"There was no cap on loans in the promise made by the BJP during the state Assembly election campaign; now they have brought in a cap and are only trying to fool the people," he said.
The Congress, on its part, has welcomed the waiver, saying that while the decision was good, much more needed to be done by the BJP governments in Uttar Pradesh and at the Centre.
(This article has been published in an arrangement with IANS.)
Join The Quint on WhatsApp. Type “JOIN” and send to 9910181818.
Subscribe To Our Daily Newsletter And Get News Delivered Straight To Your Inbox.