A fiscal epidemic is infecting India. It is eating into the innards of its public finances. Economists are trying to decode the causation and evaluate the moral hazard. Political scientists are grappling with the intent and fairness. Beneficiaries, after serial protests, are by and large satisfied, but anything free can never be enough. Victims will bleed financially through higher taxes and inflation rates, and the country will pay through reallocation of resources from infrastructure to feed this virus. We had thought that this epidemic that has roots in irrational politics had passed India and our $2 trillion economy was on a new trajectory of high economic growth, riding sound fiscal policies. We were wrong: all the virus did was to hide for nine years, lurking in the discarded but not dead policy files, to be dusted out at the right time. That time has come.
This time Waiveritis is back with a vengeance.
Lying dormant since 2008, the virus is seeing new strains now, powered by a new ecosystem of competitive politics to thrive on. They are attacking fiscal balance sheets, travelling from one state and embedding themselves into another seamlessly. This virus is immune to all political ideologies, Left or Right. It has infected the politics of five States in the first quarter of FY 2017 alone. It is a strange virus where the cure in one State becomes the cause to infect in another. In 78 days, it has inflicted a fiscal destruction of Rs 109,947 crore on fiscal books of five States --- two governed by the BJP, two by the Congress and one by the AIADMK. Farm loans have been waived off in Uttar Pradesh (UP), Maharashtra, Punjab, Karnataka and Tamil Nadu. Ranging from Rs 38,800 per farmer in Tamil Nadu to Rs 200,000 in Punjab, these waivers are being seen to benefit a total of 16.9 million farmers in these five States.
Waiveritis 2017 has unleashed a race to the fiscal bottom. Credit capturing by the Opposition has resulted in a strange competition among those we outsource economic governance to. When Maharashtra finally decided to waive off Rs 30,000 crore of loans to benefit its 3.1 million farmers, the Opposition raised the pitch and the Devendra Fadnavis government had to increase the number by 13.4% to Rs 34,022 crore and expand the benefit 3.5 million farmers. As a result, government expenditure on key projects will have to be cut,
Fadnavis said. In fact, Fadnavis is the rare chief minister who is conscious of and vocal about the fiscal implications of waiving off farm loans. “After loans were waived off in 2008 (by the UPA 1 government), 16,000 farmers committed suicide till 2014. So, it is proved now that by just waiving off loans you cannot stop suicides. You need to create a mechanism that can help farmers,”
he rightly argued.
But when Waiveritis strikes, the ability to listen to reason ends. In the face of competitive politicking, there is no space left for rational policymaking.
There is nothing new in the use of finance by politics to sow the seeds of voting behaviour. Go back three decades, and you see the instrument of loan being used as a tool to entrench politics. It took a rational and moral strength of institutions like the Reserve Bank of India (RBI) and the Guwahati High Court to nip such excesses. In November 1987, when Haryana Chief Minister Devi Lal signed a loan waiver order, then RBI governor R.N. Malhotra told the powerful politician he
couldn’t dictate policy decisions to commercial banks. One month earlier, when the Congress was distributing ‘loan mela’ forms to the electorate in Tripura for elections in January 1988, it resulted in a blockade by CPI (M), finally leading to violence. The Left Front government said the loan mela was an attempt of the Congress to
bribe voters. Following a writ petition, the Guwahati High Court ruled October 31, 1987 as the last date of distributing loan mela forms. The Congress-TUJS (Tripura Upajati Juba Samiti) alliance still won, securing 31 out of the 59 seats.
Two decades later, Waiveritis 2008 attacked India, when in his 2008-09 budget, then Finance Minister P. Chidambaram proposed and passed a
Rs 60,000 crore loan waiver scheme (Rs 50,000 crore of waiver to benefit 30 million farmers and Rs 10,000 crore one time settlement to benefit 10 million farmers). Titled Agricultural Debt Waiver and Debt Relief Scheme, 30 million farmers were supposed to benefit from the waiver and 10 million from the settlement. The Lok Sabha had thundered with applause. But a
World Bank paper noted that this scheme “had no effect on productivity, wages, or consumption, and instead led to significant changes in credit allocation and an increase in defaults. Loan defaults become significantly more sensitive to the electoral cycle after the programme, suggesting the anticipation of future credit market interventions as an important channel through which moral hazard in loan repayment is intensified.”
Let’s be clear: loan waivers are not easy decisions.
When the currency of pressure moves from assemblies and dharnas to serial suicides, no government on this planet can withstand the siege on public finances.
That life can be so cheap and money so expensive is a matter that we as a nation must sit up, take note of --- and fix. It is one thing to condemn the political leadership, and it’s quite another to oversee deaths. In pursuit of loan waiver,
Madhya Pradesh has seen 20 suicides in two weeks, by debt-distressed farmers. From Madhya Pradesh, Waverities is spreading to Haryana, where the farmers seem to be a hardier lot --- no suicides, thankfully. Here, the nature of protests has
changed to blockades. We can safely expect Madhya Pradesh chief minister Shivraj Singh Chouhan and Haryana Chief Minister Manohar Lal Khattar, both from the BJP, to follow their counterparts --- Karnataka chief minister Siddaramaiah and Punjab chief minister Amarinder Singh (both Congress), Maharashtra Chief Minister Devendra Fadnavis and UP Chief Minister Yogi Adityanath (both BJP), and Tamil Nadu Chief Minister Edappadi K. Palaniswami (AIADMK) --- and become willing victims of Waiveritis 2017 and oversee the weakening of the fiscal strength of India.
The views expressed above belong to the author(s). ORF research and analyses now available on Telegram! Click here to access our curated content — blogs, longforms and interviews.
PREV
