Are India’s farm debt waivers a political tool that impacts government finances?

Sowmya Dhanaraj, Vidya Mahambare and Pragati
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Vidya Mahambare: Great Lakes Institute of Management
Pragati: Madras School of Economics

Working Papers from Madras School of Economics,Chennai,India

Abstract: Farm debt waivers which are meant to be a one-time settlement of loans have become common in India. We find that the timing of waiver announcements by state governments between 2001-02 and 2018-19 is associated with the timing of elections rather than agrarian distress reflected in droughts or farmer suicides. The waivers, unanticipated shocks to government expenditure, are associated with an increased revenue deficit, which is accommodated by a nearly 1/3rd cut in capital expenditure to control fiscal deficit within a stipulated norm. Given its path dependence, lower capital expenditure also reduces the quality of government spending in subsequent years.

Keywords: debt waivers; agriculture policy; agriculture credit; welfare programs; electoral promises; state finances (search for similar items in EconPapers)
JEL-codes: H31 H53 H81 Q14 Q18 (search for similar items in EconPapers)
Pages: 48 pages
Date: 2021-11
New Economics Papers: this item is included in nep-agr
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Persistent link: https://EconPapers.repec.org/RePEc:mad:wpaper:2021-211

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