The Karnataka Chief Minister made a statement on May 30th that the newly elected government will come up with a policy to waive farmer loans worth ₹53,000 crores within 15 days. Given this policy context where some form of a waiver looks imminent, the question that confronts us is this: can this waiver be used as an opportunity to bring in structural reforms?
I spoke on this topic to Anusha Ravi of The New Indian Express. The newspaper report is here. These are the questions and my responses to them:
Are politicians compromising on the economic health of Karnataka with the commitment of such a waiver?
Helping distressed farmers is a political imperative that finds resonance across the board. Especially so because Karnataka has been facing drought over three successive 3 years. At the same time, this immediate crisis gives a golden opportunity for the state to take up structural reforms that will help raise revenues.
Can a state with budget outlay of Rs 2,09,181 crore afford a farm loan waiver of Rs 53,000 crore?
The total expenditure budget estimated for 2018-19 is 1,98,095 crores. Given that the total loan waiver amounts to nearly one-fourth of the budget size, the government will have to spread its liabilities over multiple years. At the same time, the government will have to mobilise additional sources of revenue to be able to pay off these liabilities.
Where can the state raise revenue to implement such a waiver?
The government has the opportunity to use this crisis as an opportunity for structural reforms. There are several opportunities available. Reforming the electricity sector by making consumers pay the actual cost of power is one such move. Power subsidies currently amount to a whopping 9250 cr per year. The Karnataka government also runs a total of 93 PSUs. 12 are in a non-working state and government must speeded up the divestment of such firms. Better land use, monetising parking in city areas, and improving property tax collections are some other areas the government can think of. States such as Kerala, Punjab, and Sikkim allow lottery schemes to function to raise revenues – this should also be considered.
Would such an implementation mean cutting back allocation for other sectors?
If this policy announcement of assisting distressed farmers is not simultaneously backed by structural reforms to raise revenues, the government will be left with no other option but to cut down expenditure in other areas.