Centre weighs options on farm loan waiver with eye on 2019 elections

Direct benefit transfers, and lowering the GST on agricultural products are in the offing, said sources in the government

With the Bharatiya Janata Party (BJP) losing in the Assembly elections in three crucial north Indian states, the National Democratic Alliance at the Centre is looking at several measures to win back voters in the run-up to the Lok Sabha polls next year. A blanket farm loan waiver, direct benefit transfers, and lowering the goods and services tax (GST) on agricultural products are among the measures under study, said sources in the government. 

Even within the Sangh Parivar, affiliates such as Laghu Udyog Bharti, Bharatiya Kisan Sangh (BKS) and Bharatiya Mazdoor Sangh have been urging Prime Minister Narendra Modi’s government to do more for workers, farmers, agricultural labourers, and small businessmen. Now their voices will only get stronger.

Some members of the Sangh are already citing the damage done by demonetisation and the GST roll-out to the rural economy, small enterprises and the informal sector as reasons for the party’s loss in Rajasthan, Madhya Pradesh (MP) and Chhattisgarh — three states that the BJP ruled till Tuesday.

Sources in the government said the Centre would seek suggestions from experts on steps to be taken between now and March, when the Election Commission is likely to announce the code of conduct for the 2019 Lok Sabha elections. The Centre might look at replicating Telangana’s Rythu Bandhu scheme that helped the state CM K Chandrashekar Rao romp back to power on Tuesday, said sources. 

Loan waiver: Course correction? 

The BJP and the BKS have been opposed to farm loan waivers as they are of the opinion that this is not a long-term solution.

The Congress, however, has promised loan waiver in the three states it won within 10 days of forming governments. For this, the new governments would have to spend about Rs 220 billion in Rajasthan, Rs 160 billion in MP, and nearly Rs 30 billion in Chhattisgarh. Now, the Modi government could also consider this option. 

“It is an important decision, and will not be implemented in a hurry. We would give all suggestions adequate consideration before taking any final decision,” said a senior government official  BJP members of Parliament from rural areas have conveyed to the party leadership that it no longer had the luxury of implementing long-term measures.

Looking back 

The Congress-led United Progressive Alliance government had implemented the last big loan waiver in 2008. According to some estimates, it benefitted 38.8 million farmers; debt to the tune of Rs 650 billion was waived.

Scheduled commercial banks, regional rural banks, cooperative credit institutions and local area banks had implemented the scheme. The entire “eligible amount” was waived for small and marginal farmers. For other farmers, there was a one-time settlement.

This was cited as one of the main reasons why the ruling coalition came back to power after the 2009 Lok Sabha elections. Farm economist Ashok Gulati said with recent electoral losses, the BJP imitating the Congress strategy might not be a distant cry. This might cost the  exchequer Rs 4-5 trillion.

So far, seven states have announced farm loan waivers totalling about Rs 1.9 trillion.