Maha Vikas Aghadi govt in Maharashtra could focus on farm debt waivers

The state govt can go for a waiver of Rs 50,000 crore spread over a couple of years, said Macquarie.

Business Standard : The change of guard in Maharashtra could lead to large farm debt waivers and projects getting stalled, warned Macquarie.

Farm distress and debt waivers were part of the election campaign by the Opposition parties in Maharashtra against the ruling Bharatiya Janata Party (BJP) government.

Now, an alliance of the Shiv Sena, the Nationalist Congress Party (NCP) and the Congress, is set to form the government and expected to address the farm distress. And, they will have adequate fiscal space to do so, Macquarie estimated.

“Farm loan waiver can potentially be the first order of the business of the new government,” the brokerage said.

Maharashtra’s GDP of Rs 26.603 trillion had a fiscal deficit of 2.1 per cent in fiscal year 2018-19 (FY19) and targets were set to keep it at the same level for FY20.

“The Maharashtra government can do a waiver of Rs 500 billion (Rs 50,000 crore) spread over a couple of years without breaching limit of 3 per cent set under FRBM Act,” the brokerage said, adding that most of the public sector banks would have exposure to Maharashtra’s agriculture sector. Even as there were no large micro finance institutions, smaller cooperative banks dominate the agriculture loan market.

Maha Vikas Aghadi govt in Maharashtra could focus on farm debt waivers

Projects at high risk of getting stalled includes the Mumbai-Ahmedabad high-speed rail along with the Mumbai Nagpur Expressway. L&T was the front runner in getting the high speed rail contract, but that may get negated now. The Mumbai-Nagpur Expressway is split into 16 packages, all of which have already been awarded.

However, the metro and airport projects would likely continue as they are in advanced stages of completion, but the pace of execution could get affected, Macquarie warned. Funding for these projects are primarily coming from multilateral agencies. The real estate sector would likely get a boost.

The Reserve Bank of India (RBI) has been against any farm debt waiver. Recently, a committee headed by Deputy Governor M K Jain had said the focus should be to enhance productivity of the agriculture sector, and not debt waivers.

Their report pointed out that since 2014-15, debt waivers saw an unprecedented rise in the country, led by the state governments. According to the report, 10 states announced loan waivers aggregating Rs 2.4 trillion (1.4 per cent of 2016-17 GDP at current prices) since 2014-15.