Farmers loan waiver will have adverse impact on State Finances: SBI

Farmers loan waiver will have adverse impact on State Finances: SBI

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New Delhi, Jun 20

The largest Public Sector bank State Bank of India (SBI) today warned that the farmers’ loan waiver will have a major adverse impact on the State Finances in India which have been under strain for quite some time. In an analysis, prepared by Dr Soumya Kanti Ghosh, Group Chief Economic Adviser, State Bank of India, it is said the demand for a loan waiver currently has been accentuated perhaps by 2 successive years of less than normal rainfall in FY14 and FY15.

Apart from impacting asset quality for the Agricultural sector (return to trend growth may get delayed by 4 years), farm loan waiver will impact State finances (i.e. State fiscal deficits) adversely. The analytical report of SBI said, “The impact on Punjab will be maximum, with state fiscal deficit jumping by an additional 4.8 per cent of Gross State Domestic Product (GSDP). We thus believe that states will make provisions of farm loan waiver in their budgets in multiple years.” According to SBI, with Centre distancing itself from the stance taken by states on the farm loan waiver front and proceeds from GST uncertain in initial period and the implementation of UDAY bonds, states will have a tough task cut out for them if they want to achieve the budgeted deficit of 3 per cent.

Following the 14th Finance Commission recommendations, many State governments have adhered to the 3 per cent fiscal target. However the recent report of RBI on State Finances indicated that out of 29 states, 17 states have more than or equal to 3 per cent fiscal deficit. Four states were in the range of 2.5-3.0 per cent, out of which Andhra Pradesh and Punjab will breach the 3 per cent mark as both the states have announced farm loan waiver scheme. Only 8 states will have now less than 2.5 per cent fiscal deficit. According to RBI State Finance Report, in the medium to long term GST is likely to increase the tax buoyancy of the Central and state governments by 0.6 per cent which is likely to reduce the gross fiscal deficit by 0.7-1.2 per cent of GDP if disinvestment receipts and non-tax revenues remain unchanged from the trend of the previous 5 years.

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