Debt waiver schemes likely to eat into states' capital expenditure

The move would boost consumption growth but may adversely impact the quality of fiscal deficit as well as GDP growth, says ICRA

The litany of schemes rolled out to waive farm loans by state governments may put pressure on fiscal profile and hit the outlay for capital expenditure. 
 

It is also likely to give rise to defaults in non-farm loans in rural areas, according to banks and rating agencies.

Aditi Nayar, vice-president and principal economist, ICRA, said that with Assembly elections likely to be held in several states by the end of Calendar Year 2019, there is a possibility of continued pre-election announcements from state governments. 

Accordingly, states may have to curtail the pace of growth of capex to avoid a fiscal slippage.

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