(This story originally appeared in on Oct 24, 2016)

ET View

NEW DELHI: Over 25 lakh farmer families in Punjab could have loan waiver promise counterfoils from two political parties before the state elections as both the Congress and Aam Aadmi Party have embarked on an identical exercise while promising to waive off loans if they come to power next year.A Congress functionary told ET that Congress has already collected 22 lakh Kisan Mangpatras in the last 10 days from farmers in Punjab, promising a wholesale loan waiver if Congress comes to power. The target is over 25 lakh forms to be filled by October 25, the functionary said. 18 lakh farmers have also got a recorded telephonic call from Congress Vice-President Rahul Gandhi, assuring them of the waiver – he features on the Mangpatra too.Realising the issue’s importance in agrarian-dominated Punjab, the AAP has two days ago now floated an identical loan waiver form termed ‘Loan Waiver Promise Letter’ carrying Arvind Kejriwal ’s signature, promising to waive off loans of all small farmers – AAP workers have also started visiting homes of farmers with these forms to fill in their details and give them a counterfoil.The ruling Akali Dal-BJP regime has so far called the promises a “gimmick”, asking from where the funds will come to waive off the huge loan liabilities. Congress leaders say AAP is only copying them as the Grand Old Party was the first to promise a fullscale loan waiver in Punjab. The AAP Kisan Manifesto released last month promised complete waiver of bank loans of small farmers, Dalit and backward class farmers and farm labourers while assuring the interest amount of other farmers will be waived off.A Bad Idea A loan waiver is bad in principle, and will erode health of banks even further. Such waivers impair the lending climate, and hurt loan discipline. It unfairly penalises borrowers who have repaid their loans. Besides, waivers also create a moral hazard as farmer borrowers will expect future dues to be written off, and it also increases the risk of default. The only way to alleviate agrarian distress is to reform the farm sector to boost productivity and output.