After opening the day marginally higher, Indian share markets have continued their momentum and are presently trading in the green. Sectoral indices are trading on a positive note with stocks in the FMCG sector and IT sector leading the gains.

The BSE Sensex is trading up 164 points (up 0.6%) and the NSE Nifty is trading up 39 points (up 0.4%). The BSE Mid Cap index is trading up by 0.2%, while the BSE Small Cap index is trading up by 0.6%. The rupee is trading at 64.56 to the US$.

The recent farm loan waiver in Uttar Pradesh has made farmers of other states demand loan waivers. As per an article in Livemint, farmers from Tamil Nadu, Karnataka, Madhya Pradesh, and Rajasthan have made protests for farm loan waiver from the government.

Furthermore, Punjab is likely to announce a loan waiver. As per the news, the Congress had promised to write-off loans and the Amarinder Singh-led government is under pressure to stick to this commitment.

All of this comes as the Yogi Adityanath-led BJP government in Uttar Pradesh recently announced writing off crop loans of up to Rs 1 lakh for about 21.5 million small and marginal farmers. The total waiver for this stood at Rs 363 billion and is recorded as one of the highest waiver promised by a state.

What one shall understand is that farm loan waiver is one of the key ways through which state government appeases farmers. While this can help farmers and enable them to seek new loans from the banks, loan waivers do not help economic growth. This is because loan waivers are only focused on the short term and the expenditure on loan waivers leaves the government with less fiscal space for productive infrastructure spending.

But apart from the monetary impact, there is also the question of moral hazard in loan waivers.

Our big picture expert Vivek Kaul explains it succinctly in his Diary: