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

Author

Listed:
  • Sowmya Dhanaraj

    ((Corresponding author), Madras School of Economics)

  • Vidya Mahambare

    (Great Lakes Institute of Management)

  • Pragati

    (Madras School of Economics)

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.

Suggested Citation

  • Sowmya Dhanaraj & Vidya Mahambare & Pragati, 2021. "Are India’s farm debt waivers a political tool that impacts government finances?," Working Papers 2021-211, Madras School of Economics,Chennai,India.
    • Handle: RePEc:mad:wpaper:2021-211
    as

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    References listed on IDEAS

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    More about this item

    Keywords

    debt waivers; agriculture policy; agriculture credit; welfare programs; electoral promises; state finances;
    All these keywords.

    JEL classification:

    • H53 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Welfare Programs
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
    • H81 - Public Economics - - Miscellaneous Issues - - - Governmental Loans; Loan Guarantees; Credits; Grants; Bailouts
    • Q18 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Policy; Food Policy; Animal Welfare Policy
    • Q14 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Finance

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