Loan Waiver in the Union Budget 2008 – 09: A Magical Spell of a Politician
March 3, 2008 by Team ASO
Elamurugu Govindarajan
It has been the hot talk of the country this week… The budget announcement of waiving off the loans to the farmers for about Rs.60,000 crores has created a kind of tumult with the question of how the union government is going to bear the loss of such a huge amount. It is the first of its kind for Indian scenario to see a huge rebate given for one sector of the society. But there emerges the political acumen of, so far called, capitalist finance minister. It has become a chance for the minister to put into lights that he knows politics also.
The debts incurred by the farmers from the banks are not at all a burden for them. The real burden for the farmers which has led to suicides was the debt they incurred from the private money lenders. We never heard of any stories that the banks threatened the farmers to pay the loan amount. It is only from the money lenders the farmers have been receiving the threats that led to unfortunate deaths. Hence waiving off loans will do nothing good to farmers, as they are not going to be affected even if the loans are not waived off. The prosperous thing which would have been done really for them is giving additional loans to them to get away from the private money lenders and go further in their agriculture productivity. But our finance minister has not touched that issue and he saves himself by giving just an advice to the banks to give more loans further. It is note that it is a request not an order, which will be definitely rejected by the banks that have faced unfortunate losses due to farmer loans previously
On the other hand, waiving off loans will not make any banks suffer as it does nothing for banks other than clearing the shelves. The loans given to the farmers have been recorded so far as Non Performing Assets and neatly arranged in shelves as files. The minister’s announcement has given spaces for banks to hold new files and nothing else. The minister has informed that ways are being studied to compensate the loss due to waiving off the loans and it will be done in due course of time. Here also, it is not a promise, but a probable suggestion.
Then if not farmers and if not banks, who has gained through the announcement? It is on the whole the UPA government which tends to face the Parliamentary elections in near future. This proposal will definitely do magic in the vote bank as it has been prophecised by many as the brave, costly step by the government for the welfare of the farmers. In particular, it will help our finance minister Mr. P. Chidambaram, who has proved that he can do politics also other than business through budget, to focus him as the next possible candidate for Prime Minister from UPA.
In this juncture, where politics plays in social afflictions, it is not needed to worry that huge loss has been raised to our government. The announcement will do harm to none, no good to none. It is just a house keeping step to clean the shelves in the banks.
This is an election-oriented budget for sure. If not, what’s the need or hurry to waive off Rs.60,000 crores worth of farm loans now? This could’ve been done in the first or second year of governance rather than the last year of this govt. Also, had they done this earlier, farmers would’nt have faced distress and commit suicides. A lot many could have been saved.
Another key point is where is the budget allocation for this waive off. The FM has’nt clearly shown where this money will come from. Is the Govt going to fund it or going to pass the buck to PSU banks? If banks are going to foot the bill, what about their profitability not to speak of their competitiveness vis-a-vis private sector banks?
And what about the farmers who had been honest enough to pay back the money they borrowed? Won’t they feel that they have been taken for a ride? This Govt’s decision to waive off loan means honest repayment isn’t appreciated anymore. In future, it’ll act as a huge disincentive to honest farmers to pay back the borrowed money.
Sixth Pay Commission’s effect is going to be 0.4% of GDP and is going to cost Rs.20,000 crores. Election year bonanza? Also there’s been talks floating in the air that the retirement age for Govt employees may be rised to 60 yrs from the current 58. Election year largesse?
It all shows for itself. The budget allocations speak for themselves and they give clear pointers to where things are headed for. Despite all these clarity, the FM says budgets don’t win elections. May be true! Perhaps, the Congress wants to save their face by narrowing the margin of loss in the next elections.
In our country, budgets are not made from true economic basis. They are tools for promoting populism. As long as parochial politicians stay at the helm, this won’t change for a long time. Higher taxes & duties, large loans from World Bank (of which considerable amounts get pocketed by corrupt politicians), largesse for voter groups and this cycle is vicious leaving no room real development.
God save India!
“A view from the outside”……….this article buttresses that…
Now this budget looks like a document that was compiled in 2-3 days with no real ideological efforts…
I rate it at 4/10…
1 mark for showing the fiscal indicators under control
1 mark for helping the auto sector
1 mark for helping the health and education sector
1 mark for making it a political success…
6 negative points cut 6 points
the 60000 controversy, a small defence budget. minority vote bank payment of 540 crores, bundling a very small 500 crores to NE states, ignoring the corporate tax reduction and missing the textiles sector
I personally think the loan waiver plus providing more loans more flexibly will make the difference. With more loans available without too many constraints, farmers wouldn’t have to depend on private money lenders and the loan waiver will increase the possibility and probability of the farmers repaying the amount.
Mr. Ram Kumar has a point when he talks about honest farmers.
Yet,to my mind,in the larger inteest of the public the move by finmin is right even though it has an election flavor in it.
FM said he has removedaccmulateddustfrom thebalance sheetof banks whoalllowed this dust to accumulate.
did authorities take steps at the time ofsanctioning loans whether they arebeing used forproductive purpose or personalpurpose.