K'taka CM Kumaraswamy keeps promise, announces Rs 340 bn farm loan waiver

In the maiden Budget of the Janata Dal (Secular)-Congress coalition government in Karnataka, Chief Minister H D Kumaraswamy (HDK) announced a farm loan waiver worth 340 billion to provide relief to 4.5 million farmers in the state, up to Rs 200,000 of overdue amount per farmer family. 

This upper limit makes the Karnataka scheme more liberal than similar schemes in Uttar Pradesh (UP) and Maharashtra, where the upper limit per beneficiary was Rs 100,000 and Rs 150,000, respectively.

As a result, according to Business Standard calculations, the average amount waived by the state per beneficiary in Karnataka would be about Rs 75,000, almost twice of that in UP at Rs 42,000 and Rs 34,000 in Maharashtra. 

The scheme will apply to all commercial, cooperative and regional rural banks, and to those farmers in Karnataka who have defaulted on loan repayments in the period April 1, 2009, to December 31, 2017, HDK, who also holds the finance portfolio, said.

“With a view to eliminate bad farm debt, we have provided the most generous cap per farmer, and have not limited the scheme to small and marginal farmers,” a senior secretary from the Karnataka finance department said. 

 

Karnataka Chief Minister HD Kumaraswamy after presenting the state budget 2018-19 in the Assembly in Bengaluru on Thursday | photo: PTI

The Rs 340-billion promised in the Budget is a bit less than the Rs 372 billion mentioned in the scheme document owing to some overlap with the 2017 waiver scheme that relieved farm debt worth Rs 82 billion from cooperative banks only. 

This would take the aggregate amount to Rs 422 billion, with some more relief to the state exchequer still possible, due to Reserve Bank of India (RBI) norms, finance department officials said. 

“The actual fiscal implication could be a little lower since banks themselves would contribute a part of overdues from non-performing accounts,” said the official. 

However, it will take four years for the state to service the waiver fully. An amount of Rs 65 billion has been earmarked for this financial year towards its first-phase execution. 

Among the 4.5 million estimated beneficiaries, about 1.73 million would be farmers who have defaulted due to distress, while 2.76 million regular repayers will get partial benefit as an encouragement for further prompt repayment. 

The outgo towards defaulters would be Rs 302 billion, compared to the Rs 69 billion towards regular payers, since the upper limit for the latter is capped at Rs 25,000 per farmer family.

Commenting on Karnataka’s waiver scheme, D K Joshi, chief economist at CRISIL, said such waivers would further worsen the fiscal health of states.