Yogi Adityanath Cabinet waives off crop loans worth Rs 36,000 crore

UP to float Farmers' Relief Bond for composite waiver amount; decision to benefit 21.5 mn farmers

Within a fortnight of taking office, the Yogi Adityanath-led Bharatiya Janata Party (BJP) government in Uttar Pradesh (UP) on Tuesday fulfilled its key poll promise, writing off crop loans of up to Rs 1 lakh for about 21.5 million small and marginal farmers.

The total waiver will be of Rs 36,359 crore — one of the highest-ever promised by a state. 

Of this, Rs 5,630 crore of NPAs, or non-performing assets, of 700,000 farmers will be immediately waived. This would not only enable these farmers to seek new loans, but also clean up the account books of the banks involved. According to the official data, there are 23 million farmers in UP, of whom about 92.5 per cent, or about 21.5 million, belong to the small and marginal segments. 

State Health Minister and Spokesperson Siddharth Nath Singh said the government would bear the entire burden, with no help from the Centre. He also said the state government would raise the money by floating “farmer relief bonds”. 

“This is for the farmers of the state on the occasion of Ram Navami, and a step towards building Ram Rajya (kingdom of Ram),” Deputy Chief Minister Dinesh Sharma said.

Considering the burden on the state’s finances and to keep the fiscal deficit under the stipulated 3 per cent mark, the state would float Farmers’ Relief Bond to the tune of the composite crop loan waiver amount.

In 2016-17, UP had budgeted for a fiscal deficit of Rs 49,960 crore (4.04 per cent of the gross state domestic product, or GSDP, including the Ujwal Discom Assurance Yojana, or UDAY. But it ended up climbing to Rs 55,020 crore (4.45 per cent of GSDP). At a time when the state is also staring at its Pay Commission obligations, any additional burden is bound to be fiscally ruinous.

The state has budgeted to bring the deficit down to three per cent in 2017-18 (provisional), but if the past is anything to go by, it seems unlikely. In 2015-16, it had projected a fiscal deficit of Rs 31,559 crore of 2.87 per cent of the GSDP. But it ended up climbing to Rs 58,475 crore, or 5.3 per cent of the GSDP.

“The crop loan waiver scheme would be put before the state assembly meeting during its forthcoming Budget session for approval,” Singh said. 

He also referred to the distress in the state farm sector due to the vagaries of floods, drought and hailstorms in the past years.

“The amount of loans taken by farmers and that which has been waived does not seem to match, which raises questions about the exact and actual benefit that growers will have. Moreover, this move seems to be with an eye on the 2019 General Elections,” said Sudhir Panwar, a former member of the Uttar Pradesh Planning Commission.

In other decisions, the UP Cabinet in its first meeting announced that the government will procure 8 million tonnes of wheat from farmers through 5,000 wheat purchasing centres. It also decided to transfer the amount directly into the bank account of farmers to eliminate middlemen. A committee has been constituted to help potato farmers.

Besides,to stop migration of youth and attract investments, the state Cabinet also decided to formulate a new industrial policy, with the objective of a single-window clearance system. 

It decided to constitute a Group of Ministers (GoM) to draft a New Industrial Policy for UP. The GoM will be headed by deputy chief minister (CM) and former Lucknow mayor Dinesh Sharma and comprise senior ministers Rajesh Agarwal, Satish Mahana, Gopal Das Nandi and Srikant Sharma. 

The GoM would visit top industrial states such as Gujarat, Maharashtra and Madhya Pradesh to study their industrial policies and draft a similar document for UP to spur industrialisation and investment, and to generate job opportunities to stop migration of youth to other states in search of employment. 

Besides, another GoM would be constituted, headed by another deputy CM Keshav Prasad Maurya to root out illegal mining in the state. Other members of the GoM include Suresh Khanna and Dara Singh. The GoM would submit its report within a week. 

Meanwhile, Singh informed that only 26 illegal slaughterhouses had been shut in UP and that the state government would follow the directives of the National Green Tribunal in letter and spirit. 

The loan waiver decision comes on a day the Madras High Court directed the Tamil Nadu government to write off loans of all drought-hit farmers in the state, which would entail an additional burden of Rs 1,980 crore on the state government.

The court asked the Centre not to remain “a silent spectator” and extend help as the state government was single-handedly shouldering the burden of Rs 5,780 crore from its July 2016 decision when it waived loans of farmers owning five acres or less.

The UP government’s decision fulfils Prime Minister Narendra Modi’s poll promise to the people of the state, but is also likely to lead to similar demands for farm debt waiver across the country. Already, the BJP-led government in Maharashtra, and that of its ally the Telugu Desam Party in Andhra Pradesh, is under pressure on the issue.

Similarly, such demands could come up in Gujarat and Himachal Pradesh, due for elections by December, in Karnataka that goes to polls in mid-2018, and also in BJP-ruled Chhattisgarh, Madhya Pradesh and Rajasthan, all of which go to polls end-2018.

Newly elected Punjab Chief Minister Amarinder Singh has also promised a waiver of farm loans to farmers in the state, and in his meeting with the PM in New Delhi on March 22 had sought central help.

On March 23, Finance Minister Arun Jaitley speaking in the Rajya Sabha ruled out central assistance to states for farm loan waiver. He said the Centre will continue to give interest subvention on such loans, but states will need to find their own resources for farm loan waiver. He also said the Centre will not be selective. “The situation, where the Centre will help one state and not the others, will not arise,” he said.

Why raising bonds for loan waivers will not be cake walk

With the opening up of bond markets to foreigners in 2015, states have used the route to finance various schemes. A prime example was UDAY. However, states with healthy Budgets and relatively lower debt find it easier to get their bonds rated investment grade by ratings agencies, and attract more investors. UP will find it tougher. It may have to open up its books to the ratings agencies and get them independently audited as well. Finding investors to buy those bonds will be a challenge as well.