Hazardous loan wavers in India

Bloomberg: India’s Most Powerful Banker Warns of Loan Waiver Hazards

Article published: Sep 11, 2014 – out of date: no longer suitable for your IB Economics commentary

IB Economics syllabus: Section 1, Microeconomics

Chairman of the State Bank of India (the largest lender of India, not to be confused with the Reserve Bank of India – India’s central bank), Arundhati Bhattacharya, is objecting government officials to write-off as much as $5.8 billion in loans of Indian farmers. This state provided financial lifebelt would be a form of subsidy that farmers have received many times since the early 1990s. However, such policies increase the number of bad loans which is not good for the banking system and hold back economical development at the same time. A lengthy article it may be, it provides a good insight into how “leading in India can get political.” You can comment on the long-run efficiency of this kind of subsidy and discuss the idea that government intervention is sometimes more about politics than economics.

Source of image: Bikramjit Bose/Bloomberg Markets

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