Farm loan waiver to cost Karnataka Rs 12,000 crore

Karnataka Chief Minister BS Yeddyurappa announced a farm loan waiver soon after taking oath, a move that economists feel could cost the state dear. It's in keeping with his party BJP's pre-poll promise of granting waiver to farmers who had raised loans of up to Rs 1 lakh.

"Its cost to the state exchequer would be roughly to the tune of Rs 12,000 crore," says Professor R. S. Deshpande, senior economist and former director and currently honorary visiting professor at the Institute for Social and Economic Change (ISEC), Bengaluru.

Speaking to Business Today, he said, "The figure on the actual impact could go up as we still need to get numbers from commercial banks on the outstanding loans to such farmers (could be about 8 lakh of them)."

The immediate impact would be that the amount would get reduced from the state's expenditure on development, he says. This may not be the best thing at the moment. Consider this. Professor Deshpande says that the Karnataka government has already accumulated huge debt over the past five years and servicing this will alone take a huge share of the state's  revenue every year. He calls it a result of the failure of the state's agriculture policy that allowed loans to get accumulated and not taking adequate correctives during crop failures and farmers' distress.

Calling for greater accountability, he says, "That is one reason farmer suicides continue in the state and it is estimated that about 10 farmers commit suicide everyday in the state," he says. Deshpande is also quite critical of the handling of affairs by the last agriculture minister Krishna Byre Gowda. But then, he did have words of praise for the minister's father, C Byre Gowda, who also happened to be the state's former agriculture minister but someone, who Deshpande feels, did some stellar work in this area. For the moment, the next five years are going to be a testing time for any government, adds Deshpande.

While all eyes at the moment are on Yeddyurappa and how he can garner the numbers needed to ensure his government's survival, the move on farm loan waiver was rather swift, in line with the emphasis in the party manifesto. The first line of his party's election manifesto in the state promises: "crop loan waiver up to Rs 1 lakh, including all loans from various nationalised banks and cooperatives in the first cabinet meeting for the benefit of farmers".