Amidst spreading demand for the farm loan waivers across the country, Finance Minister Arun Jaitley has clarified that the central government will not be part of a state’s fiscal leverage in waiving farm loans. Clearing the air on whether the Centre would financially support states that are offering farm loan waivers, Jaitley categorically said that states which want to go for these kinds of schemes should generate the funds from their own resources.
Jaitley’s comments came after Maharashtra joined a growing list of states that announced costly bailouts for farmers following widespread protests. Maharashtra government announced a loan waiver for over one crore farmers who have land holdings of less than five acres and this move would cost the state exchequer Rs 30,000 crore.
On the same issue, the Reserve Bank of India (RBI) too had recently expressed concern that rush for such actions may harm the country’s fiscal health and may have inflationary spillovers. It warned that unless there is existing fiscal space in the state budgets, the states should avoid going down the slippery path of farm loan waivers, as it would be risky to tread on that path.