Farm loan waiver gets thumbs-down from former central bankers

With the farm loan waiver pitch getting shriller by the day, former RBI governor Y V Reddy today said the practice is not good for "economic or credit culture" and insisted that ultimately it is a political decision and cannot be justified in the longer run.
Even former RBI governor C Rangarajan took a similar line, saying the alternative is to offer farmers a longer window to pay off.
Reddy noted that every political party in India has offered such waiver in some state or the other or at an all- India level.
"Loan waiver is not good for economic or credit culture. Every political party in India has given farm loan waiver in some state or the other or at all-India level. So, ultimately it is a political decision, it cannot be justified in the longer run," he said on the sidelines of the Inclusive Finance India Summit 2017.

Rangarajan observed that instead of waiving farm loans, the government should give longer time to farmers to repay loan or perhaps waive the payment of instalment and rate of interest in that particular year.
"First thing to do is waiver of interest payments during the year of distress, second reschedule the loans so that the farmers will get a longer timeframe for repayment and finally, if all these things don't succeed, then the government should think of farm loan waiver," Rangarajan suggested.

Both the former RBI governors' remarks assume significance, coming in the wake of such announcements by Punjab, Uttar Pradesh and Maharashtra.

Recently, Congress leader Rahul Gandhi too tried a similar pitch during his campaign for Gujarat elections by promising farmers loan waivers if his party forms the government in the state.
In 2008, the government wrote off farm loans to the tune of Rs 74,000 crore.
Rangarajan pointed out that increase in growth rate in the second quarter indicates that the slowdown is bottoming out.
"My own assessment is that in the next two quarters, rate of growth will be 7 per cent so that on an average for the year, GDP growth will be 6.5 per cent," Rangarajan said.
To a query on inflation, Rangarajan said, "My own view is probably inflation will be a little over 4 per cent (by March 2018) as one does not know what will happen to oil prices. But improvement in agriculture should have a favourable impact on agriculture prices."

On surge in Bitcoin prices, Reddy said, "It is better we take a definitive view on Bitcoins. I think the main problem for the government and the central bank is to decide what to do (with Bitcoins). Everybody is aware that it (Bitcoin) is a big problem."
On sidelines of the same event, former RBI deputy governor H R Khan said investment in Bitcoins is "dangerous" and people should figure this out.
Earlier, participating in a panel discussion with former RBI governors Bimal Jalan, D Subbarao and Reddy, Rangarajan said financial inclusion is not an option, but a compulsion.
He added: "I think local character of regional rural banks (RRBs) is diluted. In my opinion, this is regression, not forward movement."

Jalan's prescription is inclusion has to be combined with financial stability.
Subbarao explained that India is a large country and what works in Nagaland may not work in Kerala, which is why "we should have a diversified model for financial inclusion".
Former RBI deputy governor Subir Gokarn moderated the session.