Mandsaur crisis: Farm loan waive offs are really not a solution, only temporary relief, Devendra Fadnavis, the chief minister of Maharashtra, decided to follow his counterpart Uttar Pradesh, Yogi Adityanath to give loans to farmers in Maharashtra. Small and marginal farmers’ loans have been phased out with immediate effect.
As for other farmers, a committee was created to decide on the criteria for a new waiver. Initial media estimates suggest that the loan waiver will cost the Maharashtra government anywhere between Rs.25 billion rupees to 30,000 rupees
The Union’s Finance Minister, Arun Jaitley, has refused to fund agricultural lending to state governments. Given this, the Maharashtra government will finance this alone by giving up, in order to repay the banks that granted the loans.
How does it affect the finances of the Government of Maharashtra? In 2017-2018, the Government of Maharashtra should manage a budget deficit of 37 789 peak points or 1.53% of GDP. The budget deficit is the difference between what a government earns and what it spends. (The source of all figures reflect the finances of the Maharashtra government is here). The loan waives farmers should cost Rs 25 billion farmers Rs to Rs 30 billion rupees.
The State will finance more requested loans, adding to the state budget deficit. At the upper level of Rs 30,000 crore, this would mean that the budget deficit would increase to Rs 67,789 crore or 2.74% of the state’s gross domestic product (GDP), if all else remains the same.
Even with the exception of agricultural loans, the State budget deficit will be well below the 3% ceiling set by the Finance Committee. Having said that this loan would make sense Maharashtra global loans.
In 2017-2018, the total debt of the Government of Maharashtra should be a little more than Rs 4.13 lakh million rupees. Although the agricultural loan add another Rs 30 billion rupees this. In absolute terms, Maharashtra is the most indebted among all the states of the country. While a percentage of GDP state, this represents approximately 18 percent of GDP state, which is not very high compared to other states.
While Finance Minister Arun Jaitley, moved away from agricultural credit financing, state governments drop the issue, is this important? The central government guarantees the debt incurred by the state government. Thus, in effect, the indebtedness of the governments of the states are also liabilities of the central government.
The only thing Jaitley’s position made is that the central government’s budget deficit is kept under control. However, the general budget deficit of the Government and state central governments is increasing, and this is the figure that counts.
The overall fiscal deficit of the States was a source of concern in recent years. In 2013-2014, the overall fiscal deficit of state governments was 2.2 percent of GDP. This has increased to 3.6 percent of GDP in 2015 to 2016 before falling to 2.9 percent of GDP in 2016-2017.
With states like Maharashtra and Uttar Pradesh before him, relinquishing loans to farmers, the general budget deficit of states, will resume in 2017-2018. Other states should follow suit. Applications are already being made in states such as Punjab and Tamil Nadu for exemption from agricultural lending. Since many states have already given up on loans to farmers, other states will have trouble not to give loans, as applications begin to arrive.
This will increase the overall fiscal deficit of the nation.
When governments take more loans, and they hide their private and current loans, pushing interest rates. Although the likelihood that something like this will happen immediately will be low because the growth of private loans is still sluggish. But as the economy recovers, there will be a problem.
In addition, newsletters suggest that farmers have begun discarding their outstanding government loans from the state in which they live, with waiver of their loan. In economics, one speaks of moral hazard.
The economist and former Federal Reserve Vice President Alan Blinder After writing on the music stopped, he said that “the central idea behind moral hazard is that people who are well insured against risk are less likely to have pains (and incur In costs) to avoid it. “In this context, this means that farmers do not respect their loans until they are excluded. This also causes deterioration of the credit culture, and it is expected that their debts