To opt to “loosen” a plank of the platform from which a remarkably successful election campaign has just been mounted does call for distinct moral courage: particularly from the person who had been in the forefront of weathering the demonetisation storm. That only underscores the relevance of the caution on farm loan waivers sounded by the head of the State Bank of India. Though not a politician, Ms Arundhati Bhattacharya could not be unaware of the BJP having promised a farm loan wavier if the UP voters “returned” it to power in Lucknow, and she would also have been aware of the media being present at an event in Mumbai at which she contended that a waiver culture militated against credit discipline.
Whether other bankers will echo her sentiment is of limited consequence, she was targeting politicians who offer “sops” at somebody else’s expense. Adding weight to her words was the reality that the SBI had only the previous day announced a one-time settlement of assistance for farm equipment, tractor loans etc: so she was not insensitive to agrarian distress. “We feel that in case of a (farm) loan waiver, there is always a fall in credit discipline, because the people who get waivers have expectations of future waivers as well.
As such, future loans given often remain unpaid”. While she clarified that no formal proposal for waivers had been received, she pointed out that “Today the loans will come back as the government will pay for it, but when we disburse loans again the farmers will wait for the next election and another waiver”.
Ms Bhattacharya was actually endorsing the view of the former Governor of the Reserve Bank that “waiving off loan is an unhealthy activity, and every time a waiver is done it diverts access to credit and shrinks credit availability”.
The Indian Banks’ Association is said to be taking the issue up with the finance ministry too, “the magnitude of the problem, if the proposal (the poll promise) is implemented, can be seen from the fact that UP ranks third in India in terms of agricultural credit exposure” according to the IBA. And a CAG report a couple of years ago had determined that a number of beneficiaries were not eligible for the waivers.
The basic issue is political rather than economic or financial. Successive governments have failed to tackle the core issues of the agricultural sector, and have taken the populist escape route of loan waivers.
Much noise is made about “non-performing assets” and the corporate sector is slammed as the culprit. The SBI chief has only injected a reality check into the equation: but will that suffice to disabuse the match-winning ploy that was Garibi Hatao?