Uttar Pradesh election win will boost PM Modi's reforms but loan waiver a bad idea

Congress Vice President, Rahul Gandhi would have, by now, reckoned that the central plank of his Uttar Pradesh assembly poll campaign--‘loan waiver within 10 days of coming to power' -- didn’t really work well.

The Modi-wave gifted a landslide victory for BJP in the state reducing the Congress-Samajwadi Party opposition to nothing, but onlookers in the game. From the early days of his campaign, ‘Kisan Yatra’, what dominated Gandhi’s campaign was an instant loan waiver to poor farmers of India’s most populous state once his party comes to power. Clearly, the farmer didn’t take the bait, and many other factors worked to swing the poll results in favour of BJP.

Gandhi should have realised that loan waiver promises have never done the trick for political parties to win elections. Had it been so, the 2008 farm loan waiver implemented by the then UPA government would have benefitted the Congress subsequently to improve its fortunes in the agrarian states like UP.

File image of Narendra Modi. PTI

Prime minister Narendra Modi. PTI

Unfortunately, Narendra Modi too repeated the promise of loan waiver ahead of UP polls (read here), saying “We will waive farmers’ loan in our first cabinet meeting after the results of UP polls on March 11”. If helping the poor farmer is the idea Modi shouldn’t repeat Gandhi’s mistake and project loan waiver as a remedy to end farmers’ miseries. Past evidences suggest that such measures have hardly helped the actual needy farmer, instead have destroyed their credit culture.

The point here is lack of funding has hardly been the core problem in the Indian farming community. Banks have always rushed to finance farmers to meet their priority sector lending targets. Agriculture is one of the biggest sectors where Indian banks have put their money. As on 20 January, total loans to this agriculture and allied activities by Indian banks stood at Rs 9.2 lakh crore which now constitutes close to 14 percent of the total bank loans. This chunk has grown by 13.4 percent over the last year when the total bank credit grew by 9.5 percent. Obviously, money isn’t the lone factor that the farmers need.

Reform push

At a larger level, the UP poll results will significantly improve BJP’s position in the Upper House though it may happen over time. At present, BJP has 56 seats in the Rajya Sabha while the Congress is still with the largest party with 59 members. This situation will change as more BJP members come to the House but it may have to wait for more time since only 10 out of UP’s 31 Rajya Sabha seats will come up for re-election before the 2019 elections (read here).

But, more than the number game, the huge public mandate will give a psychological advantage to Modi in the House and will help the government progress on the reforms agenda, mainly the remaining work on Goods and Services Tax (GST), and later the politically sensitive land and labour reforms. This is good news for Indian economy since Modi government’s weak position in the RS has largely acted as a roadblock for the government to push critical reforms, except those that can find their way as money bills. For global investors too, Modi’s victory in UP will be reassuring about the continuation of a stable political regime.

The note ban has deviated the debate, at least in the third quarter, from the core reform agenda Modi-government has pursued ever since it took over charge in 2014. Post note ban, the key economic indicators on the ground showed a dip even though the third quarter GDP figures suggested otherwise. It is time now for the government to ensure it doesn’t lose track of the reform path.

At this point, the bigger reform challenges ahead for the Modi-government are, to ensure GST implementation, pursue banking sector reforms, especially radical measures to deal with Non-performing Asset (NPA) problems, privatisation of state-run banks and work on land and labour law reforms. In every sense, UP is a shot in the arm for the Modi government to pursue its reform agenda. Loan waiver needn’t be one.

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Updated Date: Mar 14, 2017 13:00:08 IST

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