Farm loan waivers have become fashionable, said brokerage house CLSA, which expects states like Tamil Nadu, Madhya Pradesh, Karnataka and Haryana to follow Maharashtra and Uttar Pradesh and waive off farm loans. The total impact of the hike would take the total farm loan waivers from $10 billion to about $28 billion. Assuming that the impact is staggered over five years, the annual rise in consolidated fiscal deficit will be around 25 basis points of the gross domestic product, added the brokerage house. This in turn would put pressure on government's capital expenditure.
Another trigger for the central government to focus increasingly on rural India would be the general elections in 2019, with the number of sops going up as we get closer to elections, said CLSA.
The report expects the move to dampen sentiment on PSU Banks and NBFCs. The potential fiscal slippages may impact the future of the central bank's rate cut cycle as well as bond yields, it added.
CLSA expects the government's rural sops to continue as the country heads to polls in the summer of 2019.
Adversely Affected
Public sector banks and non-banking financial corporations are expected to be impacted by the move, said CLSA. It will also implement future rate cut cycles and bond yields, the brokerage house added.
Gainers
Mahindra and Mahindra Ltd., the biggest agriculture equipment manufacturer in India, will stand to gain the most from these waivers, said CLSA. The brokerage house also expects ITC Ltd. which get 30 percent of its revenue from rural India to benefit from this move. 2-wheeler manufacturers may also gain from additional liquidity in rural India, added the brokerage.
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