INDIA’S prime minister Narendra Modi’s government is likely to announce loan waivers worth billions of dollars to woo millions of farmers ahead of the 2019 general election, government sources said, after his ruling party suffered a rural drubbing in state polls.
Modi’s Bharatiya Janata Party (BJP) lost power to the opposition Congress in three big heartland states, where agriculture is still a mainstay, according to vote counting on Tuesday (11).
To claw back support among India’s 263 million farmers and their many millions of dependents, Modi’s administration would soon start working out the details of a plan allocating money to write off farm loans, government 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.
“Elections are round the corner and you know that you’ve failed to fix the problems be-ing faced by these farmers, so you will soon go to town promising agriloan waivers,” said Ashok Gulati, a farm economist who advised India’s last government on crop prices.
The plan could see as much as $56.5 billion in loans written off, the government sources and analysts said.
Farm loan waivers would be the biggest help the government has ever provided to farmers, said the officials, who did not wish to be identified in line with government policy. The previous Congress party led coalition government announced farm loan waivers worth nearly Rs 720 billion in 2008, helping it return to power with a bigger mandate in 2009.
Economists caution that farm loans waivers would widen a fiscal deficit the government has aimed to cap at 3.3 per cent of its gross domestic product (GDP).
Even without the farm loan waiver, some credit rating agencies have estimated the country’s fiscal deficit at 3.5 per cent of GDP, on muted tax collections.
The loan waiver also risks deepening the malaise at public sector banks saddled with most of India’s $150bn 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.
The last time a BJP government lost power, in 2004, it was largely because rural voters abandoned the party. Although farm loan waivers are a populist move, debt write-offs help only relatively well-off farmers with larger plots of land. India’s small farmers 80 per cent of the total- often cannot borrow from banks and turn instead to local money lenders who charge exorbitant interest of 25-50 per cent. Other than writing off crop loans, the government would also try to step up purchases of farmers’ produce, government sources said, without giving details.
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