Maharashtra's farm loan waiver to worsen its fiscal deficit

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Maharashtra government announces farm loan waiver of Rs 30,000 crore

Loan waiver will push Maharashtra's fiscal deficit by 118 basis points

The Rs 30,000 crore farm loan waiver announced by Maharashtra government will burden its fiscal deficit by 2.71%, India Ratings has said. 

India Ratings said, “Maharashtra's loan waiver of Rs 30,000 crore will push up states fiscal deficit to 2.71% in FY18 of gross state domestic product (GSDP).”

This would be 118 basis points higher from the budgeted 1.53% for FY18. 

Ind-Ra estimates the debt of  gross state domestic product will rise to 17.44% against the budgeted 16.26% in FY18. However, its impact will mostly depend on whether the entire loan is absorbed in FY18 or is made partially over a period of three to four years. 

Also, the state had budgeted debt stock of Rs 4,12,992 crore for FY18, with loan waiver in picture this could go up to Rs 4,42,992 crore for the year. 

Agriculture sector saw a volatile growth in the last four years in Maharashtra.  The sector saw negative growth of 11.2% and 4.6% in 2014-15 and 2015-16 respectively. However, the sector is estimated to see 12.5% growth in 2016-17 owing in increased rainfall. 

Ind-ra added, “The loan waiver is likely to reduce the fiscal space for the government to undertake higher capital expenditure over the medium-term, thus affecting its medium-term growth prospects.”

Maharashtra is the second state to announce loan waiver, UP Chief Minister Yogi Adityanath has made loan waiver of Rs 36,359 crore to 2.5 crore small and marginal farmers. 

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Demand for loan waiver has been also raised from  governments of Andhra Pradesh and Telangana state. 

Andhra Pradesh and Telangana's  total agricultural loans was at around Rs 1.4 lakh crore which is about 19% of the country’s total agricultural loans outstanding.  

"More importantly, as these schemes seem to have yielded electoral gains, similar announcements could be made in other states as well. The most vulnerable would be states in which elections are nearing, " said Ind-Ra.

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BofA Merrill Lynch Global Research, in its report said, “We expect almost all states to write- off about $40 billion (Rs 2.6 lakh crore) of farm loans in the run up to 2019 general elections following the ruling BJP's UP and Maharashtra governments' waivers.”