T.N. election: AIADMK’s promise of crop loan waiver raises questions of feasibility

AIADMK's crop loan waiver promise faces feasibility challenges amid RBI guidelines, raising concerns about fiscal impact and beneficiary reach.

The AIADMK’s electoral promise of waiver of loans taken through cooperative institutions has raised the question of feasibility in the wake of the Reserve Bank of India’s (RBI) directions. 

The AIADMK’s scheme covers crop loans obtained by farmers from primary agricultural credit cooperative societies (PACCS) and loans obtained by persons with disabilities and pavement vendors from cooperative banks. Though the ruling DMK is silent this time on the issue of waiver of crop loans, it made an assurance five years ago in this regard. 

In December 2024 and November 2025, the RBI issued two separate guidelines on the subject of the resolution of stressed assets of different banks, including cooperative banks. The November 2025 communication specifically pertains to rural cooperative banks. 

Broadly, the RBI favours upfront detailed budgetary provision/funding towards any proposed Debt Relief Schemes (DRS) to fully cover the required settlement amount. Where lenders have dues from the government, pertaining to earlier DRS schemes, new schemes should be announced only on a fully pre-funded basis.

This approach varies from the practice adopted by the Tamil Nadu government in the past 20 years, wherein the coverage of total waived amount of crop loans was spread over five years. For instance, the State government, five years ago, waived crop loans of farmers for about ₹12,111 crore, the outstanding figure as on January 31, 2021. In the first year (2021-22), it released ₹4,250 crore payable to the National Bank for Agriculture and Rural Development (NABARD) and ₹554 crore towards interest on the waived amount payable to the cooperative societies. 

The RBI’s stipulations require the State government to make a provision for the entire amount in the first year itself in the event of the AIADMK capturing power and deciding to implement its proposal. This may compound the fiscal situation of the State government, which is already implementing a number of welfare schemes and freebies.