'Agri loan waiver should not form part of poll promises'

New Delhi: Former RBI Governor Raghuram Rajan Friday said farm loan waiver should not form part of poll promises and he has written to Election Commission that such issues should be taken off the table.

It not only inhibits investment in the farm sector but put pressure on the fiscal of states which undertake farm loan waiver, he said.

In every state election during the last five years, loan waiver promise made by one political party or other. The recently concluded assembly election in five states, agriculture loan waiver and increasing minimum support price (MSP) of cereals was again part of manifesto of some of the political parties.

"I have said forever, even written a letter to the Election Commissioner saying they should be taken off the table. I mean, certainly there is reason to think about farm distress. But, the question of whether the flows to farmers is best affected by waiving loans, after all, there is only a subset of farmers who get those loans.

"So, it often goes to the best connected rather than those most poorly off. Second, it obviously creates enormous problems for the fiscal of the state once those waivers are done. And I think, unfortunately, it inhibits investment down the line," he said here while releasing a report titled 'An Economic Strategy for India'.

Loan waivers, as the RBI has repeatedly argued, vitiate the credit culture, and stress the budgets of the waiving state or central government, he said.

"And I think our farmers deserve no less. We need to create the environment in which they can be a vibrant force and I would say more resources are definitely needed. Whether loan waivers are the best? I think it's highly questionable," he said.

He expressed hope that an all-party agreement to this effect would be in the nation's interest.

"It's no surprise to you that there is fair amount of agricultural distress which we have seen being highlighted by farmers, and also political parties are responding with variety of measures such as loan waivers," he said citing the report outlining the agenda for the next five years.