Can Kumaraswamy Afford His Rs 53,000 Cr Farm Loan Waiver Promise?

The revenue expenditure of state is around Rs 1.62 lakh crore and the loan waiver would take 32% of this amount.

Kumaraswamy has asked for 15 days to come up with the plan for farm loan waiver. 

(Photo Courtesy: TNM)

“If you don’t give me time to breathe, how will I run this government,” asked Karnataka Chief Minister HD Kumaraswamy, before announcing that his government requires 15 more days to finalise the plan to waive farmers’ loans in the state.

Before taking this position, during Kumaraswamy’s meeting with farmer leaders from all 30 districts, he claimed that unlike Maharashtra and Uttar Pradesh, where only loans up to Rs 1 lakh were waived, in Karnataka, all farmer loans will be waived.

But this will happen in a phased manner. Although he said the details of the first phase of the waiver will be decided in the next 15 days, he didn’t specify the criteria for those who will be included in phase one of the waivers.

The Waiver Will Cost 32% of State’s Total Spending

The ambitious plans of CM Kumaraswamy will cost the exchequer Rs 53,000 crore. The sheer enormity of the amount has raised apprehensions about the stress it will put on the state’s treasury.

Photo: The Quint

The total budget of Karnataka as of 2018 is Rs 2.09 lakh crore and the revenue expenditure – the money available for spending – is around Rs 1.62 lakh crore. Rs 53,000 crore would amount to 32 percent of the total revenue expenditure. If such as sum is paid for a single programme, the government will be forced to cut down expenditure on several other development projects.

Another Hill to A Mountain of Liabilities

According to the Karnataka Fiscal Responsibility Act, the liabilities of the state can’t exceed 25 percent of the Gross State Domestic Product (GSDP). As per the budget presented by former CM Siddaramaiah in 2018, the liabilities of the state were Rs 2.86 lakh crore, estimated to be 20.36 percent of the GSDP. This means Kumaraswamy can only afford to spend around Rs 71,000 crore ( i.e 5 percent of GSDP) to implement loan waiver.

However, the government has already committed to several other projects including providing additional Rs 10,000 crore to implement the 7th Pay Commission for government employees and Rs 28,000 crore for SC/ST sub plan. These projects are in addition to the funds needed to run the state. This will only raise the burden on the government’s ability spend on the development works.

Phased Waiver Could Affect the Economy

In order to avoid the burden on the exchequer, the waiver can be split across a few years. However, that would trouble the banking system, says experts.

A Narendar Pani, a political economist with the National Institute of the Advanced Studies, explains, “First of all, the farm loan waiver will be a punishment for those farmers who have diligently paid their dues. Some of them may stop paying back, and demand the waiver. And if this is extended over a period of years, all loan repayment could come to a halt, in anticipation of loan waiver.”

A senior SBI official, on the condition of anonymity, added that a farm loan waiver is not a viable solution for farmer distress, and in such a situation banks would prefer guarantee of repayment from the government than the farmers, as there have already been large defaults in loan repayments. This would further burden the state treasury.

‘Rahul Gandhi Gave Me Power, Despite People’s Blessing’

At the Vidhan Soudha on Wednesday morning, Kumaraswamy had a tough time handling farmers who demanded an immediate waiver of loans. The farmers, who demanded a waiver of all farmer loans (apart from crop loans) worth Rs 1.21 lakh crore, went on to create chaos during the meeting.

Trying to pacify the crowd, Kumaraswamy said: “Despite the blessing of people, Rahul Gandhi has given us power. We have got a good opportunity, they are not opposed to me, so we will convince them. This (loan waiver) is a golden opportunity for you, please use and stand by us… deputy chief minister and I have a good unity. Don’t waste this opportunity, we will fulfil all your demands, but you must give us some time.”

As per Kumaraswamy’s proposal, the initial focus of the loan waiver scheme will be on commercial banks located in non-city corporations, essentially the rural banks. The farmers will have to submit the records of the loans they have taken and documents to prove how they spent the money. This process will be supervised by government appointed Nodal Officers.

However, as of now, these are only recommendations, the final plan for the waiver will be available after the Congress party ‘high command’ approves of it. According to sources, this process may take close to two weeks.