|Karnataka chief minister H.D. Kumaraswamy on Sunday directed his
administration to cut down on all “unnecessary expenditure”, including
reviewing proposals to buy new cars, refurbishing and renovating
government offices or residences, to help strengthen the state’s
In other words, the CM was asking the bureaucracy and
his party colleagues to brace for the impact of a likely ₹53,000 crore
farm loan waiver, albeit in phases.
However, economists and
political analysts say that though “extreme austerity” measures could
help in a small way, it would cripple, not just the economy, but also
agriculture support infrastructure, such as power and irrigation, apart
from slashing budgetary allocations to sectors including education,
health and other essential services.
Congress, which had conceded the finance portfolio to its smaller
coalition partner, Janata Dal (Secular), among other plum portfolios,
may now find little money to fulfil its pre-poll promises and, instead,
let its regional ally stick to its own election manifesto first.
to Kumaraswamy’s woes, however, is the farmers’ demand not just for a
loan waiver, but to make them debt-free—a proposition that comes with a
price tag of ₹1.15 trillion, or over 50% of the state’s entire budget of
“This will affect the economy adversely and
other sectors will suffer,” said Abdul Aziz, economist and chair
professor, National Law School of India University.
Karnataka has one of the highest rates of farm indebtedness among
agricultural households, which form around 77% of the state’s rural
population. The national average is at 52%, shows a PRS Legislative
Research study, based on 2013 data.
“A debt-free farmer does not
come from writing off loans,” said Narendar Pani, a political analyst
and faculty at the National Institute of Advanced Studies.
the first phase of the proposed loan waiver will look at easing the
debt of small and marginal farmers, the community is now making requests
for even bigger financial benefits, which include pledged gold,
automobiles, hypothecation of farm land and even credit taken for
If the CM obliges, it could set a wrong precedent for
farmers from other states to follow, given the agrarian crisis across
India following prolonged droughts, falling agri-commodity prices and
shortage of water.
In 2016-17, banks had disbursed ₹9,59,826
crore (provisional as on 28 February 2017) credit to the agriculture
sector, including agriculture and allied, agri-infrastructure and
ancillary activities, against a target of ₹9,00,000 crore. Commercial
banks, regional rural banks (RRBs) and cooperative banks disbursed
(provisional) ₹7,33,201 crore, ₹1,03,974 crore and ₹1,22,651 crore,
respectively, according to the 2016-17 annual report by National Bank
for Agricultural and Rural Development.
Apart from vetting
legitimate claims by genuine farmers, the government’s proposal is also
focused only on institutional credit. The PRS legislative study states
that marginal and small farmers account for around 82% of all indebted
households in India and 56% of the outstanding loans by value.
However, at least 62% of this section borrow from informal sources such as moneylenders, family and friends.
Punacha, a farmer leader from Dakshina Kannada district, at a recent
meeting with the chief minister, pointed out that borrowing from
institutional sources and lending it out at a higher rate in the
informal sector was a problem that needed to be dealt with as it denied
credit to genuine farmers, who have no access to these funds nor will be
included in the waiver programme.
“Since there is no disincentive to borrow, the scope for debt will actually increase,” said Pani.