Farm loan waiver hits credit flow: Rajan

Debt write-off has not been effective, says RBI chief

Questioning the effectiveness of the government’s farm debt waiver programmes, Reserve Bank Governor Raghuram Rajan on Saturday said that such schemes had constrained credit flow to farmers.

“In some States, on certain occasions, we have had debt waivers. How effective have these debt waivers been? In fact, the studies that we have typically show that they have been ineffective. In fact, they have constrained the credit flow, post-waiver, to farmers,” he said at the annual conference of the Indian Economic Association.

On farmers’ suicide, he said there was a need to study this important and sensitive issue. “One question is how else we should deal with over-indebtedness in the farm sector. Also worth examining is the very important issue of farmers’ suicide. How much they are caused by indebtedness, especially to the formal [banking] system, how much does the formal system alleviate indebtedness … ,” he said.

The Andhra Pradesh and the Telangana governments had announced loan waivers for farmers affected by Cyclone Phailin last year.

While the Telangana government has given the mandated 25 per cent of the written-off loan to banks, Andhra Pradesh has not done it so far. Banks have a Rs. 1.3-lakh crore exposure to the farm sector in these States. — PTI