Loan waiver likely

The lack of state government resources has made the Centre step in with a loan waiver package for farmers in distress in Vidarbha. Details of the package are likely to be announced by Prime minister Manmohan Singh in the drought-hit region tomorrow.

The package is likely to be replicated in other states, fueling fears that the government might have to spend hundreds of crores on similar packages all over India.

The central government's intervention is unusual because it is the state government's responsibility to handle the financial implications arising out of a decision to waive loans. The decision came as a result of a meeting of the coordination committee of the state government and the Congress Party held in Mumbai last week.

At this meeting, party leaders like Prabha Rau (who is the state party chief) and Margaret Alva (who is the general secretary in charge of the state) emphasised that it was important for the party to be seen as coming to the aid of the farmers.

At this, Chief Minister Vilasrao Deshmukh outlined the problem. He admitted that the rate of suicides was alarming (as many as five farmers killed themselves a day before the PM's visit because they were unable to pay off their debts and since September 2005, the suicide toll has been more than 600).

However, he also said that the areas where this had happened were also the regions where the state government had pumped in maximum money.

It was decided at the meeting that the Centre's assistance would be sought because the state government simply did not have the resources to waive so many loans.

In Delhi, the finance ministry suggested to Agriculture Minister Sharad Pawar that Centrally sponsored farmer-friendly schemes could be better funded instead of doles like loan waivers. It was also suggested that as the irrigation and agriculture sector had got a huge outlay in the budget this year, more funds could be allocated through this channel.

However, the agriculture minister is said to have insisted at meeting with both the Finance Minister and the Prime Minister that what needed to be addressed was not the structural problems but immediate assistance to farmers who were unable to pay off loans.

Congress leaders in Delhi say that though the package is yet to be announced, it is likely to contain two distinct elements: waivers of those loans incurred by families which had lost the head; and restructuring of loans for those families who were finding it hard to make two ends meet. Banks from which they have taken loans will be given appropriate instructions.

The Congress however, says it is unable to do anything about the indebtedness of farmers who have taken loans from private moneylenders.

The problem is not government funding. Many farmers face problems because they borrow money at huge rates of interest from private moneylenders, the Chief minister told the coordination committee.