Please waive off my outstanding loan too

A mail with the above subject line made for an interesting read; many taxpayers would love the plea to come true

Please waive off my outstanding loan too
Please waive off my outstanding loan too
Narayan Krishnamurthy - 08 June 2017

Andhra Pradesh, UP, Maharashtra and few other states have a common thread— farm loan waiver. Some days ago, Finance Minister Arun Jaitley had ruled out farm loan waivers by the Centre, saying in Parliament that states were free to utilise their own resources in this regard. Farmer suicides and unrest in Tamil Nadu, Maharashtra, UP, MP, Andhra Pradesh and Telangana is coming out in open, and respective state governments are looking at ways to waive off the loans. The argument being: poor rains and other factors are resulting in farmers’ inability to repay loans leading to suicides and hence the waiver.

According to a recent report by Kotak Institutional Equities, the total outstanding loans to the agriculture sector in UP was around Rs 86,000 crore – roughly a fourth of all the loans in the agriculture sector. A few days ago a Bank of America Merrill Lynch (BofA-ML) report stated that farm loan waivers will amount to 2 per cent of GDP by the 2019 polls touching in all about Rs 2,57,000 crore.

The Public Accounts Committee of Parliament has estimated that the total bad loans of public sector banks, termed as Non-Performing Assets (NPAs), stands at Rs 6.8 lakh crore. About 70 per cent of this NPA is contributed by India Inc, compared to the 1 per cent by farmers. The government has gone on record to allow corporates and banks to renegotiate and restructure loans. And, chief economic adviser Arvind Subramaniam has gone on record saying that writing-off of bad loans of the corporate sector makes economic sense. “This is how capitalism works,” he said.

National problem

A friend, who dabbles with government policies chides me with a simple; “Desh ki samasya to chalti rahegi” (Nation’s problems will remain), you focus on your troubles.” Yes, my trouble is that I am short changed as a taxpayer, because a basic tax is deducted from what I earn before I receive any kind of remuneration. Then, I pay all kinds of taxes – service tax, vat, cess and more. Thankfully, all these would add into a single tax post GST (I hope). Yet, the fact remains that I would be paying taxes – direct and indirect.

I may also be slapped with some other charge on some other pretext. For instance, I recollect paying a terminal congestion charge every time I was flying out of Delhi some years ago. I also pay charges for not maintaining average balance in bank account, even if the average drops marginally. I pay toll, for using roads, which I thought was built on the tax that I paid, including additional cess every time I refuelled my car. I have lost count on the various fee and taxes that I pay, including the occasional late fee every time there is delay in credit card bill payment… the list just gets longer.

Poor borrowing habits

Although I have no loans, I come across readers who ask me why they should be paying penalties on home loan defaults when the home is yet to be delivered to them. In the case of farm loan waivers, which are extended by banks already facing huge NPA issues, a waiver indicates bad discipline by the government. Yes, the banks may dress up its books by some bonds issued by the government that will securitise the banks’ farm loans into long-dated non-SLR state government paper. This is a short-term view, something like taking a personal loan to pay off a few EMIs.

The entire loan waiver culture affects credit culture and encourages the non farmers to use farmers as a bait to first extend a loan, knowing very well that they won’t be able to repay and then encourage them to protest and get a waiver. As we are reaching the fag end of the Financial Literacy Week promoted by the RBI; I have only one thing to suggest – borrow what you can repay, else do not borrow. By waiving off farmer loans, the government is setting a wrong precedence of discouraging honest taxpayers to pay their taxes. The same taxpayer, who supported the government during demonetisation, may not be charitable in the future again.

In April, the Reserve Bank Governor Urjit Patel had said that a farm loan waiver “undermines an honest credit culture” and could “affect the national balance sheet”. I think the government should work towards enabling farmers to be self sufficient with funding than borrow from banks, only to default or create a social imbalance with suicides and protests, which does not augur well for them as well as the economy. As Patel said; “In other words, waivers engender moral hazard.” So, my humble request to the government, the next time they are waiving off any corporate or farm loan, please waive off some percentage of my outstanding loan as well.


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