With Maharashtra also joining the farm loan waiver bandwagon, various state governments are expected to waive off $40 billion, or Rs 2,57,000 crore, of farmers’ loans in the run-up to the 2019 general elections in the country, a global banking group has said.
Farm loan waivers will amount to 2 per cent of gross domestic product (GDP) by the 2019 polls, as other states are also likely to follow the BJP’s Maharashtra and UP governments, according to a Bank of America Merrill Lynch (BofA-ML) report.
“We grow more confident of our call that farm loan waivers will spread across states after Maharashtra followed Uttar Pradesh in waiving farm loans on Saturday. This begs the question, how much of farm loans will eventually get waived? $40 billion, or 2 per cent of GDP, in our view, in the run-up to the 2019 general elections.
This covers bank loans to farmers with up to five acres of land,” it said.
How will they be funded? “We assess that the Ministry of Finance will eventually have to come up with a UDAY bond-type solution that will securitise banks’ farm loans into long-dated non-SLR state government paper,” Merrill Lynch said. “It may affect credit culture, although we recognise that a good part of farmer debt arose on rural stress from poor harvests.”