'Waiving agricultural loans could cost 2% of GDP'

Washington
25 Apr 2017

Subramanian has expressed concern over the recent waiving of farmers' loans by state governments in India, saying it could increase the deficit by two per cent of the GDP if the practice is carried out nationwide.
"We've had a spate of announcements recently about agricultural loans being waived off. You know these could cost, if it were to spread, these could cost something like two per cent of GDP, adding to the deficit," Subramanian told an audience here last week.
"If these things spreads as is possible. So I think that's a kind of big challenge, he said in an apparent disagreement of the recent move by Uttar Pradesh Chief Minister Yogi Adityanath to waive agricultural loans worth Rs 36,000 crore in the state.
In an interactive session at the prestigious Peterson Institute here last week on the sidelines of the annual Spring meeting of the International Monetary Fund and the World Bank, Subramanian said actions like this pose a big challenge to the Centre's effort towards fiscal consolidation.
If the Centre achieves success, the state undoes that, he rued.
The government is grappling with the challenge of how to waive the debt of the private sector, which is a political issue now, he said.
"There are lots of discussions on how to deal with this.
But I think at the heart of the difficulty is it's very simple. How does a political system in which concerns about you know cronyism, crony capitalism are so strong? How does that system, how is it able to forgive -- is the public sector tax payer on the hook and forgive private sector debts.
"I think that's the heart of the political problem and we are still kind of grappling with how to do that, Subramanian said. (PTI)