Farm Loan Waiver Gets Thumbs-Down From Former Central Bankers

With the farm loan waiver pitch getting shriller by the day, former RBI governor YV Reddy today said the practice is not good for “economic or credit culture” and insisted that ultimately it is a political decision and cannot be justified in the longer run.

Former RBI governor C Rangarajan took a similar stance, saying the alternative is to offer farmers a longer window to pay off their debt. Reddy noted that every political party in India has offered such a waiver in some state or the other or at an all-India level.

“Loan waiver is not good for economic or credit culture. Every political party in India has given farm loan waiver in some state or the other or at all India level. So, ultimately it is a political decision, it cannot be justified in the longer run,” he said on the sidelines of the Inclusive Finance India Summit 2017.

Rangarajan observed that instead of waiving farm loans, the government should give farmers longer to repay or waive the payment of instalment and rate of interest in that particular year.

The comments from former RBI governors assume significance, coming in the wake of such announcements by Punjab, Uttar Pradesh and Maharashtra.

Also Read: Gujarat Announces Interest-Free Farm Loans Of Up To Rs 3 Lakh

Recently, Congress leader Rahul Gandhi too tried a similar pitch during his campaign for Gujarat elections by promising farmers loan waivers if his party forms the government in the state.

In 2008, the government wrote off farm loans to the tune of Rs 74,000 crore.

Rangarajan pointed out that increase in growth rate in the second quarter of the current fiscal indicates that the slowdown is bottoming out. "My own assessment is that in the next two quarters, rate of growth will be 7 percent so that on an average for the year, GDP growth will be 6.5 percent," Rangarajan said.

On surge in bitcoin prices, Reddy said, "It is better we take a definitive view on bitcoins. I think the main problem for the government and the central bank is to decide what to do (with bitcoins), everybody is aware that it (bitcoin) is a big problem," he added.

On sidelines of the same event, former RBI deputy governor HR Khan said investment in bitcoins is "dangerous" and people should understand this.

Earlier, participating in a panel discussion with former RBI governors Bimal Jalan, D Subbarao and Reddy, Rangarajan said financial inclusion is not an option, but a compulsion. Jalan's prescription is inclusion has to be combined with financial stability.

Subbarao explained that India is a large country and what works in Nagaland may not work in Kerala, which is why "we should have a diversified model for financial inclusion".

Former deputy governor Subir Gokarn moderated the session.

Also Read: Loan Waivers Show Farming Is Uneconomical, Says Father Of India's Green Revolution