Debt Relief for Farmers

This programme apparently targets the right people, but in the best case scenario offers relief for less than 60% of their debt (the part to government and private sector banks) and in the worst case scenario offers much, much less to them. The banks, however, in the midst of a global financial crisis, seem to get Rs 60k no matter what. So even if commercial banks are only 20% of the recipients, tell me who the real winners are here: poor farmers or financial institutions?

Dr. Anonymous at Pass the Roti on the Left Side comments on the decision to waive debts for farmers as announced recently in the Budget.

Then I started hunting through the budget papers looking for a bulky entry of Rs.60,000 crore for the debt waiver. This is 1.1% of GDP. It isn’t there. So there’s another 1.1% of GDP that’s off balance sheet. Why isn’t it there? I suspect it was a last minute addition to the budget speech.

Ajay Shah finds such populist measures in an election year extremely disturbing and harmful to the economy [via].

The second shady thing about the waiver is that there are no details on how the mechanics of it are going to work out. I think O P Bhat or someone has said that the loans are going to be swapped with government securities. If this is true, it presumably means that a 60,000 crore rupee provision for credit losses spread across the banking system is magically going to turn into 60,000 crore rupees of capital.

Aadisht explains why this debt waiver seems fishy. A tad technical but he promises to explain in the comments.