Loan waivers go to best connected farmers than poor, says Raghuram Rajan

Last Updated: Fri, Dec 14, 2018 19:12 hrs
Raghuram Rajan

Former Reserve Bank of India (RBI) Governor Raghuram Rajan on Friday claimed that the loan waivers for farmers actually go to the "best connected rather than the poorest".

He also underlined as to how loan waiver create a problem for the state economics. "Certainly, there is a reason to discuss about farm distress but the question of whether the flows to farmers is best affected by waiving loans, after all this only a subset of farmers who get those loans and it often goes to the best connected rather than the most poorly off. It obviously creates enormous problems for the fiscal of the state once those waivers are done," Rajan is quoted as saying while participating at an event.

The former RBI chief also took the occasion to assert that Indian farmers deserve no less and that there is a need to create an environment in which they can be a vibrant force.

"To the question of whether there are fiscal transfers needed for farmers, is certainly an issue that needs to be debated but also investment is needed in that. You can see the set of policies that we recommend is about how to make agriculture itself a vibrant industry as opposed to an industry which needs to propped up through transfers. I think our farmers deserve no less. We need to create an environment in which they can be a vibrant force. I would say more resources are definitely needed where the loan waivers are the best," he added.

Rajan was also quoted elaborating a discussion, he had with the Election Commissioner.

He said, "I have said forever, even written a letter to the Election Commissioner saying they should be taken off the table. I mean, certainly there is reason to think about farm distress. But, the question of whether the flows to farmers is best affected by waiving loans, after all, there is only a subset of farmers who get those loans.

"So, it often goes to the best connected rather than those most poorly off. Second, it obviously creates enormous problems for the fiscal of the state once those waivers are done. And I think, unfortunately, it inhibits investment down the line," he said here while releasing a report titled 'An Economic Strategy for India'.

"It's no surprise to you that there is fair amount of agricultural distress which we have seen being highlighted by farmers, and also political parties are responding with variety of measures such as loan waivers," he said citing the report outlining the agenda for the next five years.

On the current economic situation, Rajan said although India has had 7 per cent growth, it is not clearly creating enough jobs. Citing example of job shortage, he said 25 million people applied for 90,000 railway jobs.

"250 per job and these are not priced jobs. These are actually low level jobs. So, it does suggest enormous demand for jobs," he said.

Noting that there has been talk about improvement in inflation, he said, there is no improvement in the fiscal deficit of centre and states in the last 5 years. "So, in terms of public sectors borrowing, it's still as big as it was and that is source of concern especially as states budgets are going out of balance. We see trade deficit is large even after taking out the effect of borrowing," he said.

"We should ask the question that, is this growth path viable and clearly more needs to be done on macro stability, on fiscal deficit, there are proposals in the paper that how we can do that, we absolutely need to enhance growth beyond 7 per cent, lot of back and forth on what the true growth numbers are, whatever they are, they are not enough," he said as an apparent reference to the various GDP data brought by the government.

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