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How do farm loan waivers lead to deflationary pressures?

As per the following:
http://www.thehindu.com/opinion/lead/cause-for-caution-not-gloom/article19519760.ece

"fiscal tightening by States due to Ujwal DISCOM Assurance Yojana (UDAY), farm loan waivers, declining profitability of some key sectors like power and telecom, the shadow of unresolved twin balance sheet problems and transitional issues of the GST are contributory to deflationary pressures."
  1. Farm loan waivers mean more money in the economy, so there should be inflationary trend. It is generally said that farm loan waivers are unhealthy for the economy as they lead to inflation. But here it is written that they contribute to deflationary pressures.
  2. Also, through UDAY, DISCOMs can convert their debt into state bonds. That means DISCOMs will sell bonds, in return for which they will get money. Means more money in the economy causing inflation. But here, the opposite is written.

Comments

  • 1. How they add to deflation?
    In this way :
    1. You, the bank are paying me the money, okay..as a loan
    2. Now since am not paying u back you have to provision money
    3. as u make provisioning, that money is out of your regular loaning money as to meet Basel 3 norms
    4. Now I tell u i cant pay off in any case...
    5. Govt comes up with a waiver..
    6. So govt in order to waive loans, takes over the liability and makes repayment.
    7. So say 10 crores that i could have used for capital formation or skilling X,Y,Z goes to the banks.
    8. The farmer is already in a poverty stricken condition..he just neednt repay anymore by selling all that it had..

    This is how bad debts add deflationary pressures. Thus economically it is unsound.
  • 1. How they add to deflation?
    In this way :
    1. You, the bank are paying me the money, okay..as a loan
    2. Now since am not paying u back you have to provision money
    3. as u make provisioning, that money is out of your regular loaning money as to meet Basel 3 norms
    4. Now I tell u i cant pay off in any case...
    5. Govt comes up with a waiver..
    6. So govt in order to waive loans, takes over the liability and makes repayment.
    7. So say 10 crores that i could have used for capital formation or skilling X,Y,Z goes to the banks.
    8. The farmer is already in a poverty stricken condition..he just neednt repay anymore by selling all that it had..

    This is how bad debts add deflationary pressures. Thus economically it is unsound.

    but dont like hindu blame waivers..they arent that bad as the hindu says..NSSO 59th round states 40% hate farming and want to quit. Most small farmers in such cases either suicide or leave for some small town. Urbanization -> slum nivasi zindabad!
    Then some go to informal sector or become migrant labours, and Food supply reduces. Naturally, so does food security. Naturally food inflation. Protein inflation. And then the Hindu blames the government again
  • Farm Loan Waivers should lead to inflation. Oversimplistically, when the masses dont have to pay back debt they have more buying capacity in hand and since the supply is same, and demand increases, prices will increase.
    But this is a monetarist view.(money in hand)
    One step,One Punch,One Round At a Time.
    How you do anything is how you do everything.

    PSIR Optional. Aspiring Diplomat.
  • According to the author, "constriction of capital expenditure for adherence to fiscal limits" should cause deflationary effects.

    Its like saying , govt is not spending much so it'll cause deflation but we know that more money in hand and in economy is inflation, hence the confusion.
    One step,One Punch,One Round At a Time.
    How you do anything is how you do everything.

    PSIR Optional. Aspiring Diplomat.
  • Yes, as mentioned in above comment loan waivers should lead to Inflation and not the opposite. can someone with economics optional please clarify as i have only a generalist understanding of the topic. 
    The only reasoning i can give to support deflationary pressure argument is that more money in the hands of farmers means more investment in the crop production which might lead to a glut in the market and hence deflation. But this is more like fitting an explanation after knowing the answer , so not confident with this argument     
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  • loan waiver ------ putting money in a sector which will not create anything new
    gov could use that money instead to spur growth---- keynsian economics
    loan waiver means interest rate high... gov could also take loan to give loan waiver
    this could lead to crowding out of pvt sector----- higher interest for pvt sector--- deflation
  • loan waiver ------ putting money in a sector which will not create anything new
    gov could use that money instead to spur growth---- keynsian economics
    loan waiver means interest rate high... gov could also take loan to give loan waiver
    this could lead to crowding out of pvt sector----- higher interest for pvt sector--- deflation

    THIS.
    One step,One Punch,One Round At a Time.
    How you do anything is how you do everything.

    PSIR Optional. Aspiring Diplomat.
  • loan waiver ------ putting money in a sector which will not create anything new
    gov could use that money instead to spur growth---- keynsian economics
    loan waiver means interest rate high... gov could also take loan to give loan waiver
    this could lead to crowding out of pvt sector----- higher interest for pvt sector--- deflation

    How loan waiver means high interest rate?
  • Money is a limited resource. If a part is given to waive... It will increase the price of remaining resource
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