ISAS Insights

The government in the Indian state of Maharashtra has bitten the bullet. It has announced farm loan waivers which will cause a gap of about ₹32,000 crore (S$6.72 billion) in its budget. Much is being said about the political mileage that the party in power will get. This move, which followed the pre-poll announcement of farm loan waiver in another Indian state, Uttar Pradesh, has fuelled demands from farmers in other states too. Is the announcement such a political masterstroke? What will be its repercussions on the fiscal health of the state? The jury is still out. What is now becoming a pattern is the possibility of similar announcements being made by other state governments which will soon be going in for elections. Considering the fact that the fiscal health of most of the states is not good, the moves may crowd out capital expenditure, usually earmarked for asset creation.