Farm loan waiver: An economic pollutant

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At least seven states are supposed to elect new legislators and governments in 2022. The war drums have started rolling and already two parties AAP and Congress have announced sops for Goa and Punjab respectively. While Arvind Kejriwal has ‘guaranteed’ free electricity for consumers in Goa up to 300 units per month, Amarinder Singh has assured waiver of farm loans in his state.

Both would bring cheer in the respective states as sops are expected to. But they also trigger larger questions of statecraft and economics. If a government can earn enough revenues to pay for sops, prima facie there cannot be a strong argument against it, though such spending should be minimised and much of the revenue should be directed towards building economic assets that help further raise revenues and income levels.

However, Punjab is a debt-stressed state and farm loan waivers can amount to squandering valuable resources. Waiver of loans has set a trend of economic imprudence in the state. The state government has decided to pay off loans amounting to Rs 520 crore to 2.85 lakh members of primary agricultural cooperative societies. Earlier, loans amounting to Rs 4,624 crore was waived off for 5.64 lakh that was a part of the 2017 election promise by the state Congress unit.

A big bang countrywide farm loan waiver amounting to Rs 10,000 crore was organised in 1990 by the VP Singh government. In 2008, the UPA government waived Rs 60,000 crore of farm loans setting a ‘gold standard’ the dubious sop game. In the run-up the 2017 UP election, BJP promised farm loan waivers in the state. Such loan waivers have always been criticised for purely populist and little economic content. The government should mandate some agency to find out how many farmers actually benefit from them in the long run. The futility of squandering taxpayers’ money should be confronted with empirical studies.