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States will have to bear farm loan waivers from own coffers, says FM Jaitley

Reserve Bank Governor Urjit Patel has already warned of a likely fiscal situation to be going out of hands if states keep on doling out in such a manner, which may also stoke inflationary expectations.

PTI, New Delhi [Published on:12 Jun 2017, 5:21 PM IST]
File pic of Finance Minister Arun Jaitley
File pic of Finance Minister Arun Jaitley

Finance Minister Arun Jaitley today said the union government will not partake in states' fiscal leverage in waiving farm loans and made it clear that the cost has to be borne by them. 

The stance of the central government assumes significance against the backdrop of farm debt waiver announced by Maharashtra government yesterday even as the country has already witnessed violent protests from farmers in Madhya Pradesh a few days back, demanding a debt relief. 

Uttar Pradesh was the first state this year to announce a whopping Rs 36,359 crore farm debt waiver for small and marginal farmers. 

When asked about yesterday's announcement by the Maharashtra government to do away with farmers loan, Jaitley made it clear that there will be no funding from the Central coffers. 

"I have already made the position clear that states which want to go in for these kind of schemes (farm loan waivers) will have to generate them from their own resources. Beyond that the central government has nothing more to say," Jaitley responded. 

Despite a bumper crop this rabi season, farmers in many states are in distress because of sharp fall in prices in both domestic and global market, which is resulting into an agitation like situation in the country. 

Reserve Bank Governor Urjit Patel has already warned of a likely fiscal situation to be going out of hands if states keep on doling out in such a manner, which may also stoke inflationary expectations. 

"The risk of fiscal slippages, which by and large can entail inflationary spillovers, has risen with the announcements of large farm loan waivers," the RBI said in its second bi-monthly monetary policy review for 2017-18 announced last week. 

Reserve Bank keeps a close tab on retail inflation to decide on its monetary policy and manages the demand-supply math by tools such as repo rate -- at which is lends to banks.