Farm loan waiver by newly-installed Congress government has been proved as an unplanned and hasty decision. A report by a credit rating and grading agency Care Ratings says that Rajasthan has “low fiscal space” to implement the waivers amounting cumulatively to Rs 1,00,000Cr.

Not only Rajasthan but also Madhya Pradesh and Chhattisgarh lack fiscal room to implement waivers. 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

The report suggests that the state will find it difficult to carry out the decision and are likely to spread it over two years, with “compromises made along the way”.

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.

Burden on capital expenditure

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.

For next fiscal, Rajasthan, Chhattisgarh, and MP will be having an additional fiscal space of only Rs 3,095 Crore, Rs 3,120 crore, and Rs 1,195 crore, respectively. So, adding the fiscal space are much lower than the farm loan waivers.

Congress president Rahul Gandhi made this impulsive announcement to woo the farmers during election campaign before assembly elections in Rajasthan. After coming in power the new government was under pressure to fulfill its hasty promise. The Congress party not only announced the heavy loan waiver but also put the pressure on co-operative societies to support the decision.

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