Farm loans taken from agriculture cooperative societies between August 1 last year and June 30, up to Rs 25,000 including interest would be waived, Chief Minister Jagadish Shettar said replying to a debate on drought in the Assembly.
He said the state had not experienced such a "severe drought" in the past 40 years and added that to mitigate their suffering, the government has prepared the "special project".
"This would benefit 16 lakh farmers' families and for this, a grant of Rs 3,500 crore will be given," he said.
Shettar had submitted a memorandum to Prime Minister Manmohan Singh on July 17 seeking an immediate Central assistance of Rs 2,000 crore to tackle the situation.
In his first meeting with Singh after being sworn in chief minister earlier this month, Shettar also demanded that a Study Team be sent to the state to assess the latest situation and release interim relief.
He had told Singh that due to failure of monsoon in 2011, 123 taluks under 24 districts were declared drought-affected and the situation extended beyond the monsoon season of 2012.