Farm loan waivers, Uday bonds to impact state finances: Report

Policies like farm loan waivers are impacting asset quality of the agricultural sector and is also expected to affect state finances adversely, says a report.
According to SBI's research report Ecowrap, apart from farm loan waiver, Uday bonds and prohibition of alcohol are also expected to impact state finances.
"With the Centre distancing itself from the stance taken by states on the farm loan waiver front and proceeds from GST uncertain in initial period and the implementation of UDAY bonds, states will have a tough task cut out for them if they want to achieve the budgeted deficit of 3 per cent," the report said.

The government had announced Ujwal DISCOM Assurance Yojna (UDAY) in 2015 to provide support for the financial turnaround and revival of Power Distribution companies, and importantly to ensure a sustainable permanent solution to the problem.
The treatment of UDAY in state budgets is different for separate states. The states that have large amount of debt have made provision in multiple years (like Haryana, Rajasthan), while the states with less amount of debt (like in case of Jharkhand) have made provision in a single year.
"We estimate that out of 29 states, after implementation of loan waiver and UDAY, only 8 states will have now less than 2.5 per cent fiscal deficit," the report said.

The report further noted that like farm loan waiver, prohibition of alcohol also had mixed impact on state finances.
"Since excise duty on alcohol forms one of the major sources of revenue for states, banning alcohol results in heavy loss for the exchequer, leading to reversal of ban after a few years of imposition," the report said, adding the unrest in the general populace after the invocation of ban is another reason compelling states to withdraw it.