Worried of farm loan waivers impacting investment cycle: UBS Investment Bank

Tanvee Gupta Jain, India Economist, UBS Investment Bank is worried that the investment cycle recovery of states that have announced farm loan waivers could get further delayed. The farm loan waivers have to be funded by the states balance sheet, while the fiscal situation of the states is already stretched, she said in an interview to CNBC-TV18.

According to her the farm loan waivers would likely go up to USD 40 billion that is upto 1.5 percent of the gross domestic product (GDP) in the run up to the 2019 general elections. Currently, it is around USD 14 billion.

India, she said will continue to see a lopsided growth recovery. From FY17 to FY18 the real GDP growth will be 7.2 percent from 7.1 percent only, led by consumption and that in FY19 will be 7.7 percent.

So, she is majorly concerned about the investment cycle and macro stability in terms of high NPAs of the banking sector. All this will delay the public and private capex recovery.

Moreover, although the goods and services tax (GST) is extremely positive, the farm loan waivers act as deterrent, she said.

On the macro fundamentals, while she is comfortable on inflation as well as external accounts but two concerns remain – one, the stressed fiscal situation and the second is banking sector NPAs.

For the entire interview, watch video