Farm loan waiver may dent state finances, risk slippage- Free Stock Cash Tips and more Call on 9644405056

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Loan waiver schemes being doled out to farmers could have a significant impact on state government finances and pose a risk of further fiscal slippages. Four states Uttar Pradesh, Maharashtra, Punjab, and Karnataka, which account for around one-third of India's population have announced farm loan waivers and other state governments are likely to feel pressure to implement similar policies, particularly in states with upcoming elections.

"The farm loan-waiver schemes being discussed and rolled out across an increasing number of Indian states could have a significant impact on state government finances, and might undermine efforts to bring down general government debt. Larger state deficits would delay an expected gradual reduction in general government debt, which includes central and state government debt. "There is a risk that farm loan waivers - which we have not previously factored into our assumptions - will lead to further fiscal slippage at the state level or will reduce the funds available for public investment. 

The central government has the authority to block states from borrowing to finance persistently large deficits, but it could be reluctant ahead of approaching elections in some states, with the 2019 Lok Sabha election drawing nearer," Fitch said. The Centre has gradually consolidated its fiscal position in recent years and has indicated that loan waivers will have to be funded from state coffers.