Andhra Pradesh Government Caught in the Pincers on Crop Loan Waiver Issue

With the Reserve Bank of India not inclined to give nod for  ‘rescheduling of crop loans’ citing

Published: 30th July 2014 08:17 AM  |   Last Updated: 30th July 2014 08:26 AM   |  A+A-

HYDERABAD: With the Reserve Bank of India not inclined to give nod for  ‘rescheduling of crop loans’ citing ‘good yield’, the Andhra Pradesh government is thinking of alternatives to mobilise resources to keep its promise of waiving farmers’ bank loans taken for agricultural operations.

The financial position of the new state is not good as it is left with a fiscal deficit of more than Rs 15,000 crore after its forced separation from Telangana. The chances of the central government coming to its aid on this matter can be ruled out, going by what Union minister M Venkaiah Naidu had said during his visit to Hyderabad a couple of days ago.

Further, the Fiscal Responsibility and Budget Management Act (FRBM) limits the state’s borrowing capacity which would be somewhere around Rs 15,800 crore, while it requires nearly Rs 42,000 crore to fulfil its promise of loan waiver to farmers, weavers and self-help groups (SHGs).

Experts say loan repayment capacity of the state is almost non- existent given its financial position and the chances of raising security bonds are also bleak. So what are the options the state will be left with in case the RBI refuses to entertain the plea for rescheduling of crop loans? How will it mobilise money for the purpose?

OPTIONS: According to experts in governmental financial strategies, there are some options availale to the government to mobilise the resources to fund the loan waiver scheme, which chief minister N Chandrababu Naidu mentioned, in case RBI does not allow loan rescheduling. 

One of those options is to sell away the red sanders wood seized by the forest department over the years from smugglers. Huge stocks of the sandalwood logs, about 11,000 tonnes, have got piled up at various stock yards of forest department in the state. The revenue from their sale in a global auction can fetch an income of Rs 1,500 crore to Rs 1,600 crore. The preliminary process of getting permission for the sale and calling for global tenders has already been initiated and is in progress.

Another option is securitising the annual surplus income generated from state-run corporations like Beverages Corporation for about 10 years and get advances from banks. ‘’Supposing the surplus income from such corporations is to be around Rs 8,000 crore per annum, it will come to Rs 80,000 crore for 10 years. A 70 to 80 percent of that amount could be taken as advance from banks. The amount can be repaid  along with interest in instalments.’’ a banking expert said.

The government is also expecting substantial revenues from taxes, more so from the companies and corporations engaged in liquor, fuel and transport. But the revenues so earned cannot be expected to be channellised for financing the loan waiver and other populist schemes, as other needs of the state too should be taken care of apart from building the state capital as one can not expect the central government to bear the entire cost.

REIMBURSEMENT: On the other hand, experts say that the government can ask the farmers to cooperate and offer ‘farm loan reimbursement’ in place of ‘farm loan waiver’. “Given the precarious financial position and its determination to implement the loan waiver scheme, the government can ask farmers to repay the loans and reimburse the farmers the same amount over a period of time,” an expert suggested.

Meanwhile,  government sources claim that doors on RBI rescheduling the crop loans are not closed yet. The central bank has sought certain information pertaining to farmers, which the government will be providing. Discussions are still going on. it is said.

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