Telangana’s ambitious crop loan waiver might face hurdles

Telangana's current borrowing capacity, limited by the FRBM guidelines, poses a significant obstacle. The State can only access loans up to Rs.52,000 crore within these limits.

Hyderabad: Chief Minister A Revanth Reddy’s ambitious plan to implement a crop loan waiver by August 15 seems to be hitting financial roadblocks.

Despite promises made ahead of the Assembly elections, the likelihood of fulfilling this pledge appears slim given the State’s financial condition and regulations of the Reserve Bank of India.

---

Officials acknowledge the daunting task of waiving an estimated Rs.40,000 crore in loans all at once. Such a move would require nothing short of a financial miracle, as RBI norms typically prohibit such large-scale waivers.

Even if the government establishes a corporation to manage the process, it risks complicating future borrowing prospects, they said.

The Congress party, under Revanth Reddy’s leadership, had vowed to waive crop loans up to Rs.2 lakh for Telangana farmers. Initially promised to be enacted immediately after forming the government on December 9, the deadline was later extended to 100 days, and now, the fresh deadline is August 15.

While the Chief Minister has instructed officials to explore all avenues to meet this deadline, challenges abound. Financial experts point out that RBI guidelines make it improbable to implement the scheme in one go. Most of the States typically implement the scheme in a phased manner.

While Maharashtra and Telangana have earlier implemented crop loan waivers in a phased manner, others like Rajasthan implemented it only partially and Karnataka continues to grapple with the issue.

Telangana’s current borrowing capacity, limited by the FRBM guidelines, poses a significant obstacle. The State can only access loans up to Rs.52,000 crore within these limits.

Attempts to exceed this limitation, such as creation of a special corporation for farmers, might have repercussions. Since 2020-21, the Central government has been treating off budget borrowings by State governments through various corporations as the State’s own borrowings, which again should be within FRBM limits.

“Telangana availed market borrowings amounting to around Rs.50,000 crore during the entire financial year of 2023-24, which is about 130 per cent more than the budget estimates and was utilised for various developmental activities. The government has been already informed about the adverse impact of allocating a huge amount to crop loan waiver in a single fiscal on other programmes,” a senior official in the Finance Department said.

The ultimate solution may rest in the Central government intervention, but even this avenue is fraught with challenges.

For its implementation, a Central government led or supported by the Congress should be formed at the Centre. However, approval for such a one-time waiver would set a precedent, potentially triggering similar demands from other States.