Farmer loan waivers a cause for concern

The recent approval of a bailout package for indebted farmers in Uttar Pradesh fulfils an election pledge from the BJP, but should also raise concern. The unconditional debt write-off could set a political precedent in other states that would have a significant fiscal cost. It also increases the likelihood of reckless borrowing in future. The issue of waivers for indebted farmers has (re)gained attention in India over the past couple of weeks, after the new Chief Minister of Uttar Pradesh (UP), Yogi Adityanath, formally approved a bailout worth nearly US$6bn for agricultural workers. The scheme will relieve the debts of an estimated 20m farmers who owe less than INR100,000 (US$1,500) to commercial banks. It also includes a write-off of non-performing loans (NPLs) for an additional 700,000 farmers. The scheme fulfils a pledge made by the BJP ahead of the recent state election in UP. There is clearly some merit to extending financial help to agriculture sector workers in India, where incomes are often dependent on the weather (and therefore volatile). Debt write-offs for farmers are also politically popular, given that half of India’s labour force is employed in agriculture. However, there are reasons to be concerned about this decision.