If farmers loans are waived in india how will it affect the aggregate demand in the economy
Answers
Farm loan waivers may act like an immediate relief for the financially distressed, debt-ridden farmers. But it's not an optimal solution in the long run. Money is transferred from tax payers to the borrowers. This will obviously cut down the allowances for education, health care, infrastructure, etc...
Moreover, loan waivers causes a moral hazard. This disincentivize repayment of loans and interests. Just think how a farmer who has paid the loan will feel when a loan waiver is announced... This will have adverse bearings on credit discipline. So, the cries for further loan waivers will echo in the future... RBI and economists strongly advocate not to announce any loan waivers
When former PM Mr A B Vajpayee was asked about loan waivers his response was like this “ I don't believe in such populist measures... This issue can be solved only by making agriculture lucrative ”…So state governments should start thinking in that direction to find a sustainable solution... Unfortunately loan waiver is an easy way for politicians to impress the poor and this issue is going to persist for a long time....
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