Loan Waiver -A bad precedent?

The Budget- 2008 has been termed as a "Farmers Budget" by many. Even before the entire budget speech was concluded, crowds thronged before , 10 Janpath street celebrating and revelling at Chidambaram's promised Rs 60,000 Crore of agricultural loan waiver to farmers by 30th June 2008.

(also see http://kplogs.blogspot.com/2008/02/autopsy-of-chidamabrams-briefcase.html).

Meanhile Sonia Gandhi flashes a victorious smile before the camera and declares "...this has been a revolutionary budget ...for the farmers in particular.." Quite a revolutionary budget one must say. Given the fact that it is still not clear what kind of financial instruments the Government will resort to ease the writing off of Rs 60,000 Crores in loan, it is indeed a 'wait and watch' situation.

Now, with Chidambaram's inimitable style of setting himself a deadline for a task such as this, one can only expect to see one of the two possible outcomes

1. The UPA Government fails in meeting the deadline or calls for election before that date and passes on the new found burden to the next Government.
2. The Government actually manages to find finances to fund the whopping waive off.

If the outcome happens to be number 1, then its a furthur 'wait and watch' situation. But my concern in this blog is what if the outcome happens to be number 2.!!

Whether policies like Loan Waive off or Reservations are populistic political measures employed by Governements in power , I am not sure. But I cant help wondering what repurcussions do such measures have in an economic sense!

If the Government actually manages to waive off the loans, wont it be sending a message to every farmer in the country that " If you take a loan and repay it, You are a fool!"? Wont these measures act as incentives to loan defaulters to continue to default, because sooner or later , any Government in power will have to follow Chidambaram's precedent and waive it off.

Won't these measures act as deterrents for banks from actually handing loans over to farmers for agricultural developments? Won't these throw our agricultural economy to dwindle furthur from want of funds? In the name of a " Farmer's Budget" are we compromising on the farmer's competance to produce efficiently and make a profit enough to repay a loan? Are we throwing the agricultural sector into the dark ages?

Why can't we on the contrast penalise farmers for defaulting? Why cant we force the agricultural sector into becoming more efficient? This probably leads to the most disheartening and dangerous truth of a democracy like that of ours. That populist Governments no matter how well they mean, cant overlook the pressures of the majority vote!