Markets are wary of a populist farm relief package including direct benefit transfer (DBT) that Prime Minister Narendra Modi's government is considering ahead of the election to Parliament due in May.
The government is holding consultations for announcing the package in an attempt to woo back the rural voter whose apparent flight from the ruling Bharatiya Janata Party (BJP)-led National Democratic Alliance (NDA) camp led to its loss of three main states in elections last month.
Among the major steps under the government's consideration are DBT of up to Rs 4,000 per acre of cultivated land to the farmers and an interest-free loan of up to Rs 50,000 per hectare.
Sources say the sweeping steps could cost the government about Rs2.3 lakh crore annually including Rs 2 lakh crore towards DBT and up to Rs 30,000 crore for interest support. The current fertiliser subsidy scheme costing about Rs 70,000 crore will be merged into the new programme.
Bears have taken over the equities and bond markets with the Sensex slipping by about 600 points over the past few days. The sovereign bonds also have lost their charm for the traders.
The BJP's focus on the rural sector was expected after data showed the party's vote share in Madhya Pradesh was higher than rival Rahul Gandhi-led Congress, which however ended up having a few more seats and eventually formed the government.
Farmers had been on the warpath across several states amid an increasing number of suicides ahead of the recent state elections. The Congress chief ministers announced sweeping farm loan waiver programmes soon after assuming office. The new package allegedly is in the backdrop of Congress president Rahul Gandhi's challenge to the centre to waive all farm loans.
The Prime Minister's Office has been convening hurried meetings with the planning arm NITI Ayog reportedly to finalise the package that may be announced later this month or during the Union budget in February. Officials of nodal ministries agriculture, revenues, expenditure, chemical and fertilisers, food have been meeting to iron out glitches, a Business Today report says.
Data show the centre had achieved its agricultural loan disbursal target of Rs 10 lakh crore in 2017-18. But crop loan schemes have screeched to a halt with banks getting wary of loan waiver programmes. The DBT scheme will allow the government to avoid the bank loan route.
Economists have flagged several areas of fiscal worries in the context of massive farm loan waiver and relief programmes at a time when the nation's tax collection and asset sales are lagging estimates. Finance Minister Arun Jaitley said the other day the centre has missed the Goods and Services Tax (GST) target. Some sources put the shortfall figures at close to Rs 1 lakh crore.
The sovereign bond markets have reacted bearishly to reports of massive farm relief programmes. Business Standard website quoted Kuldeepsinh Jagtap, senior vice president of ICICI Securities Primary Dealership, as saying: "While market is not expecting the slippage for current fiscal to necessarily translate into extra borrowing through dated securities, the uncertainty with respect to next year's fiscal target might warrant a cautious approach till the budget in February."