Farm loan waivers have started once again. Last week, Maharashtra announced a massive loan waiver scheme that could cost the state exchequer about Rs 35,000 crore and benefit nearly 50 lakh farmers. The move has revived a long-standing debate over whether such schemes actually help farmers or undermine the country’s agricultural credit system.
Maharashtra Chief Minister Devendra Fadnavis unveiled the Punyashlok Ahilyabai Holkar Shetkari Karjmafi Yojana ahead of the upcoming Kharif season, fulfilling a promise made by the ruling Mahayuti alliance during the 2024 Assembly elections. Under the scheme, crop loans of up to Rs 2 lakh taken by farmers will be waived, provided the loans were outstanding as of September 30, 2025.
According to the state government, around 28-30 lakh farmers who have defaulted on crop loans are expected to benefit directly from the waiver. In addition, about 20 lakh farmers who have been regular in repaying their loans will receive an incentive of Rs 50,000 each as a reward for maintaining repayment discipline.
The government estimates that the waiver for defaulters alone will cost about Rs 20,000 crore, while the incentive for regular borrowers will require another Rs 15,000 crore, taking the total fiscal burden to roughly Rs 35,000 crore.
Fadnavis defended the decision, saying the scheme aims to free farmers from the burden of debt and make them eligible for fresh crop loans in the next agricultural cycle. The government has also indicated that farmers’ identities will be authenticated through Aadhaar-linked digital systems to ensure that benefits reach genuine beneficiaries before the Kharif sowing season.
Raju Shetty, founder of the Swabhimani Shetkari Sanghatana, strongly criticised the Fadnavis government’s announcement, calling the loan waiver a “sham”. He said that during a meeting held after the farmers’ protests in October, the Chief Minister had assured that the entire crop loan would be waived. Most farmers have outstanding crop loans of around Rs 3.5-4 lakh. Since the current scheme waives loans only up to Rs 2 lakh, farmers will have to repay the remaining amount to avail the benefit. “How will farmers arrange this money?” Shetty asked.
Farmers in Maharashtra had staged protests in October last year demanding a loan waiver. NCP founder Sharad Pawar had also called for the waiver of farmers’ loans. Farmers in Karnataka are also demanding crop loan waiver.
The Congress party is also demanding a farm loan waiver in Gujarat. State Congress leader Shaktisinh Gohil, in November 2025, said that some farmers in the state committed suicide due to crop loss caused by unseasonal rains. He demanded the government compensate them for the entire cost of their cultivation and also waive their debts.
A Long History of Loan Waivers
Maharashtra’s move is part of a broader pattern in India, where farm loan waivers have frequently been used as a policy response to rural distress, often around election periods. According to data compiled by the Reserve Bank of India (RBI), more than ₹3 lakh crore has been spent by the Centre and various state governments on farm loan waivers over the past 35 years.
The first major nationwide farm loan waiver was introduced in 1990 under the Agriculture and Rural Debt Relief Scheme (ARDRS). The programme covered short-term loans and overdue instalments of term loans taken from public sector banks and regional rural banks. The scheme cost around Rs 10,000 crore at the time, equivalent to over Rs 50,000 crore in today’s prices.
A much larger waiver was implemented in 2008 under the Agricultural Debt Waiver and Debt Relief Scheme (ADWDRS), which cost about Rs 52,500 crore. This programme covered loans from commercial banks, regional rural banks, cooperative institutions and local area banks, with greater relief provided to small and marginal farmers.
States Take the Lead
In recent years, however, loan waivers have increasingly been announced by state governments rather than the Centre. Since 2014-15, at least ten states have announced farm loan waiver schemes amounting to about Rs 2.4 lakh crore, according to RBI estimates. Several states launched large programmes between 2017 and 2019. Rajasthan announced a waiver of around Rs 18,000 crore, Madhya Pradesh unveiled a Rs 36,500 crore scheme, and Chhattisgarh implemented a waiver worth Rs 6,100 crore. Karnataka expanded its waiver programme significantly, increasing it from Rs 18,000 crore to Rs 44,000 crore during the same period.
While these measures were designed to reduce farmers’ debt burden and revive rural demand, economists and policymakers remain divided on their long-term impact. Farm loan waivers can impose a significant fiscal burden on state governments. The impact is usually spread over three to five years, either through phased implementation or by clearing bank dues over multiple budget cycles.
The fiscal impact varies widely across states. In some cases, waiver costs have ranged from 0.1% to nearly 2% of a state’s Gross State Domestic Product (GSDP). This can limit governments’ ability to spend on agri infrastructure.
In the case of Maharashtra, the government has maintained that the state’s finances remain strong enough to absorb the cost of the scheme. However, critics argue that such large expenditures could crowd out productive investments in the agriculture sector.
Concerns Over Credit Discipline
The Reserve Bank of India has repeatedly cautioned against frequent loan waivers, arguing that they weaken credit discipline and create moral hazard in the financial system. According to the RBI, when borrowers expect that loans may eventually be waived, some may delay or stop repayments in anticipation of such relief. This behaviour can weaken the repayment culture and affect the financial health of banks.
Analysts say the impact is particularly significant for public sector banks, which have a higher exposure to agricultural loans compared to private lenders.
Macquarie Group analyst Suresh Ganapathy said in a note, “Farm loan waivers eventually result in higher non-performing loans (NPL) in the agriculture space as they vitiate the credit culture.”
He said that the impact could be more pronounced for state-owned lenders as their farm-loan portfolios tend to have a higher share of vulnerable borrowers. While all banks are required to meet priority sector lending targets, including agriculture, public sector banks typically have larger exposure to rural and farm lending.
Direct support in place of waiver?
Another criticism is that farm loan waivers do not always reach the most vulnerable farmers. Many small or marginal farmers depend on informal credit sources such as moneylenders and therefore do not benefit from bank loan waivers.
Studies have also found that despite large announcements, only a portion of eligible farmers actually receive the promised relief. A research report noted that of 3.7 crore eligible farmers since 2014, only about half had received waiver benefits by March 2022. Economists therefore argue that direct income support programmes may be more effective than loan waivers. Such schemes can provide assistance to a wider group of farmers at a lower fiscal cost.