‘Fiscal position of Punjab too weak for farm loan waiver’

MUMBAI : Ratings agency ICRA sees Punjab facing difficulties on the fiscal front to deliver the Rs 10,000-crore farm loan waiver, while Karnataka, Maharashtra and Uttar Pradesh appear better placed to pull off similar write-offs announced by them.

These announcements will lead to higher borrowing by the states, the agency said on Thursday, estimating fresh state development loans (SDLs) to increase to Rs 5 trillion in the fiscal year 2017-18 from Rs 3.8 trillion last fiscal.

“Punjab lacks the fiscal space to accommodate the full funding of the loan waiver in 2017-18, with its fiscal deficit budgeted at a high 5% of gross state domestic product (GSDP), well above the anchor of 3%,” it said.

The agency, however, clarified that the view is based on the worst case scenario assuming all the states decide to fund the entire loan waiver in 2017-18 itself and that the exact contours of the respective packages are not yet known.

For Uttar Pradesh, which has announced a Rs 36,000- crore package, it says the state will have to cut its budgeted capital expenditure by 70% even after utilising its additional space of 0.25% of GSDP.

In Maharashtra, fiscal deficit is estimated to be within the 3% cap without having to cut the capital expenditure.

It said reports of Maharashtra’s inability to fund the Rs 34,000-crore waiver emanate from other spending that is not fully budgeted such as higher compensation to local bodies for octroi losses post-GST, or the pay revision for government employees.

The agency seemed to suggest that Karnataka is the best placed to deliver on its Rs 8,200 crore farm loan waiver announcement.