Uttar Pradesh Farm Loan Waiver: SBI Report Sees Rs 27,400-Crore Hit

The scheme will lead to some stress on the state’s fiscal arithmetic, SBI Research warned.

Workers harvest green peas by hand at a field. (Photographer: Dhiraj Singh/Bloomberg)
Workers harvest green peas by hand at a field. (Photographer: Dhiraj Singh/Bloomberg)

If the Uttar Pradesh (UP) government fulfils its farmer loan waiver promise, banks are likely to take a hit of Rs 27,420 crore and the scheme will lead to some stress on the state's fiscal arithmetic, warns a report.

The Bharatiya Janata Party (BJP) had in its UP election manifesto promised to waive farmers' loans if elected to power. The party and its allies won a whopping 325 seats in the 403-member House.

Scheduled commercial banks together had an outstanding farm credit of Rs 86,241.20 crore in UP with the average ticket size of Rs 1.34 lakh, as of 2016, most of which is to small and marginal farmers, an SBI Research report said on Monday.

According to RBI data (2012), 31 percent of the direct agriculture finance went to marginal and small farmers (with land holdings up to 2.5 acre).

"Taking this as a proxy for UP as well, around Rs 27,419.70 crore will have to be waived off in case the farm loan waiver scheme is implemented for the small and marginal farmers, for all banks," the report said.

As per the Socioeconomic and Caste Census of 2011, 40 percent of rural UP households are engaged in cultivation.

When it comes to landholdings, 92 percent are marginal and small farmers in the state, according to the 2010-11 Agriculture Census.

The report said the UP government's total revenue for financial year 2016-17 is Rs 3,40,255.24 crore, according to revised estimates, and if Rs 27,419.70 crore are to be written off, this is around 8 per cent of the total revenue.

"This will definitely cause some amount of stress for the state's fiscal arithmetic in the coming year," the report warned and said the UP government will have to go beyond the traditional solutions and find innovative ways of adding to its revenue.

The country's farm sector faces a lot of issues like raising farm productivity which need attention, it noted.

"Efforts should be made so that the farming community is covered by formal banking system so that they can easily avail crop loans," it said.

The report said the Jan Dhan scheme has ensured that almost all UP households now have bank accounts but only a small proportion of those into agriculture have availed the agriculture advances from banks.