Reserve Bank of India Governor Urjit Patel on Thursday stressed the need for building a national consensus on loan waiver schemes. Addressing a press conference here, he said this was needed so that promises such as loan waivers are not made during elections.
“We need to create consensus so that such loan waiver promises are eschewed. Otherwise, sub-sovereign fiscal challenges in this context could eventually affect the national balance sheet,” he said.
“It also entails, at the end of the day, transfer from tax payers to borrowers,” Mr. Patel pointed out. “If on account of this, the overall government borrowing goes up, yields on government bonds are also impacted. It can also lead to crowding out of private borrowers as higher government borrowing can lead to an increase in cost of borrowing for others.”
The RBI Governor’s observations assume considerable significance coming as they did in the wake of the newly-formed Bharatiya Janata Party government in Uttar Pradesh announcing farm loan waivers in tune with its poll promise. The maiden meeting of the Uttar Pradesh Cabinet headed by Yogi Adityanath took a decision early this week to waive agricultural loans worth ₹36,359 crore.
Uttar Pradesh ranks third in terms of agricultural credit exposure. The State has a 9.3% market share in agricultural credit. About 45% of its total exposure is in the rural areas. Bank of Baroda is the leading bank at the State level.
Bankers, too, have opposed the move as they felt that such schemes distort the credit culture.
“We feel that in the case of a [farm] loan waiver, there is always a fall in credit discipline because the people who get the waiver have expectations of future waivers as well,” Arundhati Bhattacharya, chairman, State Bank of India, had said last month.
