Waiving agricultural loans could dent GDP by 2%, says Chief Economic Advisor

Chief Economic Advisor Arvind Subramanian has expressed his apprehension regarding the recent waiving of farmers' loans by state governments, saying that following this practice nationwide could dent the GDP by 2%.

"We've had a spate of announcements recently about agricultural loans being waived off. You know these could cost, if it were to spread, these could cost something like two per cent of GDP, adding to the deficit," Subramanian said. "If these things spreads as is possible. So I think that's a kind of big challenge."

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The CEA is apparently not convinced of Uttar Pradesh CM Yogi Adityanath’s decision to waive agricultural loans taken by UP farmers worth Rs 36,000 crore.

Subramanian said that actions like this prove to be a big challenge to the Centre's efforts towards fiscal consolidation. He added that the government is facing challenges in form of waiving the debt of the private sector, which has even become a political issue.

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"There are lots of discussions on how to deal with this. But I think at the heart of the difficulty is it's very simple. How does a political system in which concerns about you know cronyism, crony capitalism are so strong? How does that system, how is it able to forgive -- is the public sector tax payer on the hook and forgive private sector debts.

"I think that's the heart of the political problem and we are still kind of grappling with how to do that," Subramanian added.

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