Telangana government, led by Chief Minister A Revanth Reddy, has approved a farm loan waiver of up to Rs 2 lakh for farmers in the state. The projected cost of the loan waiver is estimated to be approximately Rs 31,000 crore from the state treasury.
Here is a look into what the waiver entails and how it could impact farmers.
Understanding Farm Loan Waivers
A farm loan waiver is a government initiative aimed at alleviating farmers' financial burden by clearing outstanding agricultural loans on their behalf. It's important to clarify that this waiver does not absolve farmers of their loan obligations but shifts the repayment responsibility to the state treasury, funded by taxpayers.
The bank doesn't suffer. The government (through taxpayers) pays. There is no default. This does not apply to home, personal, or microfinance loans, said Deepak Shenoy, founder of Capital Mind.
If farmers have taken such loans, they have to pay them back. But farmers might believe that the government is waiving all loans, so they tend to stop paying on everything, he said. "Also, even within farmers, a waiver hurts people who have paid back on time, so now the incentive is: default even on new loans in the hope of the next waiver," he said in a post on X (formerly Twitter).
The way farm loan waivers work is: If you've taken an agriculture loan in a certain period, the government pays back the outstanding loan instead of you.
June 24, 2024
The bank doesn't suffer (or waive any loan). The government (i.e. taxpayers) pay. There is no default.
Doesn't apply to…Telangana's Loan Waiver Scheme
Telangana's agriculture loan waiver builds on previous initiatives undertaken by administrations such as the Bharat Rashtra Samithi government, which waived Rs 28,000 crore in farm loans over a decade. The current scheme targets loans taken between December 12, 2018, and December 9, 2023, emphasising relief within a specified timeframe.
As the state prepares to implement the scheme, discussions are ongoing about establishing a dedicated corporation to secure the necessary funds.
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