Defending the Rs 60,000-crore loan waiver over three years for farmers, Finance Minister P Chidambaram called it a “historic decision” that will give back money to the banks, clean up their books and help them lend more, stimulate the economy. He is yet to announce the fiscal provision that will provide this money to the banks to enable them to write off these loans.

There is only one instance in the recent past where a debt waiver was attempted — V P Singh waived all farm loans amounting to Rs 10,000 per farmer in 1990. That sounded the death knell for most cooperative banks in the country and the government was never able to make good the losses, Former Agriculture Minister Y K Alagh told The Indian Express today.

Alagh, as Member, Planning Commission, worked on long-term restructuring of farm loans in 1988 following two droughts. At that time, Rajiv Gandhi had put the money under the head of plan expenditure in the Budget. “The waiver announced today will have some immediate impact for some farmers (4 crore small and marginal with landholdings below five acres and 1 crore large farmers) but my fear is that it should not cripple the banks. The last time, banks were decimated as the government was not able to provide the funds.”

This time, however, Chidambaram said, he had “done his homework.”

“We have to pay for the liquidity to the banking system over a period of three years in which we would have recovered (the loans) to the extent being written off,” he said at a post-Budget briefing. Asked how banks would be compensated, he said: “Please credit me with some intelligence. We have done our homework. And when we do it, we will let you know how we do it.”

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