For farmers, the question being asked is where will the money come from

Courtesy: Rediffmail 

Newly elected to US Congress from New York, the young and articulate Alexandria Ocasio-Cortez, is a strong advocate for social justice. She has been questioning the dominant economic policies challenging corporate tax cuts and demanding more budgetary allocations for health, education and housing. In a recent TV interview, where she outlined her thinking of what good economics should mean for the people, journalist Anderson Cooper asked: “How are you going to pay for all of this?”

Now, shift the focus to India. In the past few years, nearly Rs 2.3-lakh crore of farm loan waivers have been announced by Karnataka, Madhya Pradesh, Maharashtra, Andhra Pradesh, Rajasthan, Telangana, Punjab, Rajasthan, Chhattisgarh and Tamil Nadu. While the possibility of many more State governments announcing such waivers before the 2019 elections is scaring bankers, the new RBI governor Shaktiman Das has struck a note of caution on farm loan waivers, saying it will lead to credit indiscipline. Merrill Lynch, the investment banking arm of Bank of America, had earlier warned that the farm loan waivers will amount to 2 per cent of the GDP.

The question that I am being repeatedly asked is where will the money come from. On a TV show the other day, the anchor was very clear when she asked: “Given that the fiscal position is very tight across the States, aren’t you worried that the farm loan waiver spree will upset all calculations? Haven’t the farm loan waivers already set a bad precedent as a result of which other welfare schemes will be scaled back?”

The issue we were discussing was the Rs 36,359- crore loan waiver that the Uttar Pradesh government had implemented. In my answer I said that even with its limitation of not reaching out to every indebted farmer, the UP loan waiver had benefitted 4.4 million farmers. This is not a small number, and the beneficiaries outnumber the population of Ireland. Compare this with the Rs 72,000-crore loan waiver that was accorded to a handful of power distribution companies between 2012 and 2014 and surprisingly no questions were asked about credit indiscipline then nor did anyone talk of UP not having the capacity to fund power discom loan waivers and resort the higher market borrowings.  

On another business channel, I was told the farm loan waivers are a deadly poison. It’s a wrong way of addressing a real issue, and leads of moral hazard. In my reply I quoted an RBI document, which states that in the four year period between April 2014 and April 2018, Rs 3.16-lakh crore of corporate bad debt has been written-off. According to another statement in Parliament, as on Sept 30, 2018, besides the public sector undertakings, there were only 528 borrowers who had non-performing assets (NPAs) of Rs 6.28-lakh crore while only 95 of them had defaults exceeding Rs 1,000-crore. While the Rs 2.3 lakh-crore farm loan waiver, when fully implemented, will benefit an estimated 3.4 crore farming families, there is no qualm over a massive corporate write-off which provides a bailout to only a few companies.  

The immediate response to my counter-question made a panellist to immediately retort by saying ‘two wrongs don’t make it right’. Well, in that case do you mean to say that one wrong – which is the corporate loan write-off – is right? How can any sensible economist justify the massive corporate write-off and turn his ire towards the poor farmers, I asked. In fact, the bad corporate loans are piling up. The gross Non Performing Assets (NPAs), which is a sophisticated terminology to cover up the bank defaults, have further increased by a whopping 11.2 per cent reaching Rs 10.39-lakh crore in 2017-18, and only Rs 40,400-crores have been recovered through the much talked about Insolvency and Bankruptcy Code (IBC) and Sarfaesi Act. At no stage have I seen any TV programme that calls for putting an end to rising NPAs but a number of shows have focused on waiving the waivers, calling for immediately stopping the farm loan waivers.

 

While no questions are being asked about the ‘economic viability’ of the massive write-offs of a handful of corporate waivers, a lot of heat is being unnecessarily generated over farm loans depicting a clear-cut bias in economic thinking. Surprisingly, whenever I raise the question of Rs 18.60-lakh crore going to the industry in the past 10 years as an economic stimulus package, a deafening silence follows. What is little known is that it was in 2008-09 that the government started a stimulus package of Rs 1.86-lakh crore to the industry at the time of global economic meltdown in 2008-09, a package that still continues and has been paid for ten successive years. In simple terms, the industry is getting a direct income support every year and one has ever questioned whether the stimulus package has created any fiscal indiscipline. No one ever asked where the money did come from for the Rs 18.60-lakh crore financial stimuli.

Take the case of 7th Pay Commission. Finance Minister Arun Jaitley has said in Parliament that the addition financial burden will be Rs 1.02-lakh crore every year. This will benefit 45 lakh central government employees and 50 lakh pensioners. When implemented across the country, with State governments, Public Sector Undertaking (PSUs) and colleges and universities fulfilling its obligations, the total annual burden will swell to Rs 4.5 to Rs 4.8 lakh crore, says a Credit Suisse bank study. No questions were ever asked where the money will come from and not did anyone question the widening fiscal deficit as a consequence. But talk of a farm loan waiver or any direct income support initiatives for farmers, the media gets hyper active in questioning the fiscal arithmetic.

In the US, as Alexandria explained, “Money will come from the same source from where the money for massive corporate tax exemptions come; from where the money for defence budgets come; and from where the money for space programme comes.” In India too, the money will come from the same kitty from where the budgetary allocations for 7^thPay Commission comes; from where the money for corporate tax exemptions come; and from where the money for massive bank write-offs for NPAs come. #