Madhya Pradesh has taken the lead in writing off farm loans up to Rs 2 lakh each and Chhattisgarh too has announced a similar intent. Devendra Pant, chief economist of India Ratings and Soumya Kanti Ghosh, group chief economic advisor at State Bank of India (SBI), detailed the impact.
“There will be both favourable and adverse impact. You rightly said favourable impact can give some push to the demand. The more important is when we look at state finances or country finances, deficit per se is not bad. What is going to happen is we will have more deficit coming because of the current consumption. We will be financing the current expenditure but not the capital expenditure. As of now, there is no number, we are looking at somewhere around Rs 40,000-50,000 crore worth of farm debt waiver and that is going to have a straight impact on the capital expenditure, which is being incurred by the states. It will put economy on a path where we are not investing sufficiently,” Pant told CNBC-TV18 on Tuesday.
Talking about the loan waivers announced by various states, Ghosh said, “There are states, which are now announcing loan waivers. Chhattisgarh in 2015 had announced a small loan waiver. The same state is announcing a loan waiver three years down the line and the states which are announcing the loan waiver – if you look into the indebtedness position, you will find that the formal sector credit in these states is actually on the lower side."