2018 · Q125
If farmers' loans are waived in India, how will it affect the aggregate demand in the economy?
- 1Private consumption impact via increase in private sector net wealth
- 2Public sector impact via changes in government expenditure/taxes
- 3Crowding-out impact via higher borrowings by State Governments
- 4Crowding-in impact via higher credit availability as bank NPAs fall
Select the correct answer using the code given below.
indian-polity-economyeconomy-fundamentals
- A1, 2 and 3 only
- B1, 2, 3 and 4
- C3 and 4 only
- D1 and 2 only
Explanation
Farm loan waivers affect aggregate demand through all four channels. These are (1) higher private consumption as farmers' net wealth rises, (2) the fiscal impact via changes in state government expenditure and taxes, (3) crowding-out as state governments borrow more, and (4) crowding-in as bank NPAs fall and credit availability improves — the four channels analysed in the Economic Survey 2016–17. Hence 1, 2, 3 and 4.