'Farm loan waiver cannot be justified in economic terms'

With farm loan waiver being a populist election promise in the ongoing Gujarat elections, Former Reserve Bank of India (RBI) Governor Y.V. Reddy today said that the practice is the decision of the political dispensation and cannot be justified in economic terms.

"It is not an economis or credit culture, Most political parties in government in India have done it in one state or the other. It is a political decision cannot be justified in economic terms," he said whlie speaking to ANI on the sidelines of the Inclusive Finance India Summit 2017.

H.R. Khan, former Deputy Governor RBI also present on the event said that the farm loan waiver is only a temporary solution and long term systematic reforms are needed to address the farmer issues.

"Farmer loan is a cure of syptoms, what is needed is the structural reforms, there are whole host of issues which need to be resolved like regarding support price, marketing, irrigation, quality of seeds, extension. The problem will not be solved by giving credit but steps should be taken to strengthen the farmer's income," Khan added.

Speaking on the issue of Bitcoin which is registering record heights worldwide, Reddy said that there has to be a sovereign behind fiat money as only the sovereign can take unlimited risk and has the capacity to withstand strain.

" If there is no sovereign behind fiat money then it cannot withstand strain.We do not know what will happen when it comes under stress. I think it is better we take a definitive view. Now the main problem is for both for the governments and central banks to decide what to do, everybody is aware it is a big problem. How to handle it. What are the possible consequences," Reddy said highlighting that there is huge uncertainty over something that is blowing up.

The Reserve Bank of India (RBI) had earlier called on those trading in Bitcoins and other virtual currencies regarding the risks involved in the same.

The central bank in an official release cautioned users, holders and traders of Virtual Currencies (VCs) including Bitcoins regarding the potential economic, financial, operational, legal, customer protection and security related risks associated in dealing with such VCs.