Arun Jaitley makes it clear that states will have to fund any loan waivers

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Amid growing demands for farm loan waivers in many states, Union finance minister Arun Jaitley made it clear on Monday that the states will have to give it from their own resources and that the Centre could not pitch in.

“I have already made the position clear that states which want to go in for these kinds of schemes (farm loan waivers) will have to generate them from their own resources. Beyond that, the Central government has nothing more to say,” Mr Jaitley said.

Earlier this month, Mr Jaitley had clarified that beyond what has been recommended by the 14th Finance Commission as the share of states in Central revenues, the Centre cannot give any more funds. The Narendra Modi government had accepted Finance Commission’s recommendation to increase the states’ share in Central taxes by a record 10 per cent to 42 per cent.

Under pressure from farmer groups, the Maharashtra government had on Sunday announced a farm debt waiver in the state. Madhya Pradesh has been witnessing protests over the past few days by farmers demanding a waiver on agricultural loans. Similar demands are being raised in Tamil Nadu, Punjab and Karnataka, among others.

Uttar Pradesh has already announced a `36,359-crore farm debt waiver for small and marginal farmers after a new Bharatiya Janata Party government came into power in the state earlier this year.

Reserve Bank governor Urjit Patel had warned that the fiscal situation could get out of hand if the states keep on doling out loan waivers in this manner, which may also stoke inflationary expectations.

In the past, ratings agencies have also said debt waivers could significantly impact the credit culture among farm communities in other states.

“It carries the risk of significantly impairing asset quality going forward. The unintended outcome of this could be reduced availability of credit to farmers from banks, forcing them to resort to the unorganised lending sector,” India Ratings had said in a report.