by our special correspondent
The Congress poll gimmik to waive loans of farmers instead of providing them financial help in long term will create dent in economy of both ,farmers and country.Sadly to hold back the appeasement non Congress like BJP also have to follow the suit.
The domino effect of Government of Maharashtra’s loan waiver scheme is conspicuous as demand for the same has embarked in other states too. Exigency to quell this trend.This trend must be quelled before it gains pace.In short Congress move of populist politics will again create the mahajani system as banks will now think ten times to offer loan to a farmer
This polito-finanacial to help poor farmers in repaying their loan (by waiving it off) seems quite assuaging on farmer’s stance and any laymen should applaud as the lowest person in the strata of economy is getting the direct benefit from government in the eviscerating penurious situation. The tenuous rationale surrounding all these discussion is the opposition on government helping poor as it is better to sanction loans to Malaya (as a group representative). The answer is that it will adversely affect the economy both in short and also long run and this article trots both of them out.
In short run it will increase the inflation. The current aim of RBI policy is to maintain inflation with reference to the ideology that a stable economy is pivotal for growth.This been already made clear by ex RBI governor Raghuram Rajan that for growth sustenance in long run targeting infation is quentessential. The bimonthly policy of RBI on interest rates has the sole purpose to maintain inflation. As these schemes will raise inflation the future prospects of RBI cutting interest rates, which will benefit economy as more loans will be sanctioned leading to more projects leading to more employment, will be deferred and the repercussions will be diminishing prospects for future job opportunities.
In long run it will create either a large deficit in government’s budget or it will highly impact the government’s social scheme. Each government has limited income which it collects from taxation and other resources. The loan amount is so huge that it will drive away alion’s share from the government’s budget. The government will either have to cut expenditure on other projects or will have to go for huge fiscal deficit. If it curtails other expenditures social schemes like MGNREGA, Swatch Bharat etc. the sole purpose behind these mega schemes will be vitiated. This will have a long term impact as each of these schemes. The benefits in social schemes are two fold. For example MGNAREGA not only provides employment but also improves of develops new infrastructure. So evidently driving money from these schemes will have two fold impact. The other option of fiscal deficit will also have a long term impact as thengovernment will have to issue bonds or take loan, both of which will increase the already due amounts to be paid and increase the burden of interest payable.
The reason for this uprising among farmers in Maharashtra, Punjab, Madhya Pradesh and Tamil Nadu is not just the action by Maharashtra government. The falling prices of pulses and vegetables are hidden reasons. It is true that common public has gained from curtailed inflation as the usual hackneyed news headline where “onion reaching Rs 100 per kg and Pulses Rs 200” are missing but what is missing now is equilibrium where both seller and buyer should get the best price for the utility of a product.
Moreover, loan waivers causes a moral hazard. This disincentivize repayment of loans and interests. Just think how a farmer who has paid the loan will feel when a loan waiver is announced… This will have adverse bearings on credit discipline. So, the cries for further loan waivers will echo in the future… RBI and economists strongly advocate not to announce any loan waivers
If this trend continues then even when there will be no need for loan waiver the demand for one will rise and to avoid avoidable skirmishes by farmers piqued by opposition like other subversive activities the government will be cornered to accede. This trend must be quelled before it gains pace.