Farm distress gets Rs 60,000 cr breather

BUDGET & THE ECONOMY

DEBT WAIVER The loan waiver will benefit about 30 million small and marginal farmers.

In an apparent move to appease the huge rural vote bank, the government today announced the biggest-ever agricultural loan waiver package that will cost the exchequer a whopping Rs 60,000 crore.

The move will benefit about 30 million small and marginal farmers, whose debts worth Rs 50,000 crore will be completely waived, and about 10 million other farmers.

Under this package, while all the outstanding unpaid loans of small and marginal farmers will be totally waived, the other farmers will have to repay only 75 per cent of the borrowed amount under one-time settlement arrangement.

Announcing the largesse in his budget speech, Finance Minister P Chidambaram said the agricultural loans, which were restructured or rescheduled in 2004 and 2006, would also be eligible for loan waiver and concessional repayment through one-time settlement arrangement.

All agricultural loans disbursed by the scheduled commercial banks, regional rural banks and cooperative credit institutions up to March 31, 2007, and overdue as on December 31, 2007, but not repaid till today, would be covered under this debt waiver-cum-relief scheme.

The tillers of up to one hectare of land would be considered marginal farmers and those having one to two hectares of land would be deemed small farmers.

The finance minister announced that the implementation of the scheme would be completed by June 30, 2008. The farmers would become entitled for fresh agricultural loans from the banks after the debt waiver or signing an agreement for repayment of 75 per cent amount under the one-time settlement arrangement. He, however, did not elaborate on how the banks would be compensated for the waived loans.

Referring to the indebtedness of the farmers, Chidambaram pointed out that the government had appointed a committee under the chairmanship of R Radhakarishna to examine all aspect of this issue.

"The committee had made a number of recommendations but stopped short of recommending waiver of agricultural loans."

The finance minister, however, sought to justify this populist move, maintaining that the government was conscious of the dimensions of the problem and was sensitive to the difficulties of the farming community.

He also asserted that the government had carefully weighed the pros and cons of debt waiver and had also taken into account the resource position while taking this decision.

Chidambaram told Parliament that notwithstanding some shortcomings, the growth of agricultural credit had been impressive. "We will exceed the target set for 2007-08. For 2008-09, I propose to set a target of Rs 2,80,000 crore." he said.

He thanked the commercial banks and regional rural banks which, together, accounted for between 75 and 79 per cent of agricultural credit disbursed during the year.

Chidambaram said short-term crop loans would continue to be disbursed at an annual interest rate of 7 per cent, adding that an initial provision of Rs 1,600 crore had been made for interest subvention in 2008-09.