Farm loan waivers are a paradox in a year of normal monsoon, says Crisil

Farm loan waivers are a paradox in a year of normal monsoon and could increase the pressure on the already stretched fisc of concerned states.

A Crisil Research Insight report on the just concluded monsoon sought to depict a sordid fiscal picture if more states were to latch on to the idea of loan waiver.

Collective costs

Doing an encore on what Uttar Pradesh, Maharashtra, Karnataka, and Punjab have done would set back the exchequer by Rs 2.5 lakh crore in collective costs.

This would amount to or 0.5 per cent of GDP per year, assuming the waiver gets equally staggered over three years, the report said.

The cost could be significantly high for Tamil Nadu, which has the highest outstanding agricultural loans among states. Kerala, Madhya Pradesh and Rajasthan, too, could feel some pressure.

Farm incomes remain stressed, given the volatility in prices and declining realisations. Good monsoon and bumper crop of last year had lowered the prices for most foodgrains.

For pulses and oilseeds, prices fell even below their minimum support prices and cost of cultivation, resulting in a loss on the margins.

For several crops, prices and profit margins have declined in recent months. Many states are trying to assuage distressed farmers by announcing loan waivers.

Lower sowing

Compared with last year, sowing as of September 29, 2017, was lower for foodgrains and oilseeds, the report noted.

The government’s first advance estimates suggest kharif production could be 2.8 per cent lower year-on-year for foodgrains and as much as 7.7 per cent lower for oilseeds.

But the decline is also because last year had seen a sharp increase in both the sowing area and production of most crops, the report said.

Compared with the normal or typical average for the period, sowing is higher and production as per trend this year.

Reflecting on monsoon performance of monsoon, the Crisil report said that year 2017 has been bountiful, allaying initial fears of an El Nino effect coming into play.

Uneven distribution

While the Indian Meteorological Department had forecast a two per cent deficiency, the actual deficiency is five per cent against three per cent last year but still normal.

However, distribution has been uneven with excess rains in some parts and severe shortage in others.

At an aggregate level, three agriculturally important states – Tamil Nadu, Gujarat and Andhra Pradesh – recorded excess rains causing floods or flood-like situations.

The deficient zones in Maharashtra and Karnataka received rains by August, but pockets of stress remained.

And as the season draws to a close, Uttar Pradesh, Haryana, Punjab and Madhya Pradesh are showing high deficiency at 19 per cent or more.

Despite pockets of stress, kharif production is expected to be healthy, the report assessed.

Regions that witnessed weak rains either enjoy a strong irrigation cover or are those that contribute less to kharif production, it added.

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