The Hindu Business Line : The waiver and its burden

Nothing in successive Budgets has been so mysteriously dramatic as the Rs 60,000-crore debt waiver, not the least because of its magnitude but also because of its many-layered ambiguity. The Finance Minister’s assertion that the debt waiver is not provided for in the Budget and his consistent refusal to answer the obvious question has added to the confusion. Post-Budget, he assured the media and later the Opposition that he would find the resources for this morally l oaded write-off.

Given the hopeless plight of farmers soldiering on in an increasingly unviable activity, this one-time write-off was perhaps necessary, as he aggressively insists, but why did the government not provide the funds for it? Isn’t provisioning essential to good accounting, especially for governments that use public money? So, was this indeed an afterthought inserted late in the day? If so, and contingencies may require spot decisions, that is all the more reason to clarify the sources of funds. The second ambiguity relates to the scope of the proposal. Nobody needs convincing that the most usurious debt of the rural poor is non-formal debt. Would it not have been more effective for the Finance Minister to consider also the Radhakrishna Committee’s ideas on tackling usury? While bowing to the report, the Finance Minister introduced the waiver as far superior to anything the committee had suggested. That is not so.

Further, what does that magical figure represent? Not the entire outstandings of the scheduled banks’ credit to the sector to December 2007 or the NPAs that are just a fraction of that — Rs 7,367 crore by March 2007? The Finance Minister’s figure is the total of the credit due to all three entities — banks, cooperative banks and RRBs. With the co-operative banks being the major lenders, what guarantees exist against the “moral hazard” such a debt waiver represents? In other words, which other section than the poor would possibly gain — in practice — given the leaky supervision of such entities? Since the Finance Minister has also stressed delivery systems in his speech, perhaps a mention in this context would have been appropriate. Finally, who bears the burden? The Finance Minister thinks the public should; that was what his challenge to ‘stand up and be counted’ could mean. Since the Budget has no provision, it is not cash from the present government; nor will banks carry the weight, as is now clear. The most likely will be future taxpayers, who will be called upon to redeem promissory notes or watch Budgets in their time hand out the cash for this government’s noble and belated attempt to reach out to the rural poor.

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