Question

The possible outcomes of loan waivers could be

1. Increased loans to farmers in the long run
2. Reduced farmer distress
3. Increased fiscal deficit

Which of the above statements are correct?

• A. 1 and 3
• B. 1 and 2
• C. 2 and 3
• D. 1,2 and 3

Answer 1

The correct option is C 2 and 3

Loan waivers negatively impact the credit flow because it creates distortions in the credit market since repeated waivers encourage default among the farmers.

It also increases the NPAs (Non-Performing Assets) of banks. Loan waivers also cost taxpayers and increase fiscal deficit.

But for the short term it can reduce farmer distress.