As India’s politicians gear up for a general election, competitive populism is the only game in town. The ruling Congress party, which must seek a new electoral mandate within 15 months, has played a high-value card early, announcing a $15bn loan waiver for small farmers. The centrepiece of next year’s budget, the write-off is a present to a key voter group, the 40m farmers who are in default on loans taken out with state-owned banks and other institutional lenders. The scheme will cost the equivalent of 1.2 per cent of gross domestic product and will be implemented by the end of June, giving the government the option of an early election in the autumn.

The waiver will, in the short-term, boost rural incomes at a politically expedient time. Addressing villagers at a rally the day after the budget, Sonia Gandhi, the Congress party president, hailed the scheme as a “revolutionary step”. For the moment, the banks are not complaining: they stand to be compensated for loans that had already gone bad. In the medium term, however, the write-off could retard efforts to scale up access to finance for the rural poor, 70 per cent of whom lack a bank account and 87 per cent of whom have no access to credit from a formal source, according to a recent survey by the World Bank and National Council for Applied Economic Research.