The Tamil Nadu government has objected to the Reserve of Bank of India (RBI)'s decision to increase the interest rate for the National Bank for Agriculture and Rural Development (Nabard)'s Rural Infrastructure Development Fund (RIDF), which is used by the state governments to develop infrastructure in rural areas. The state government has asked the Prime Minister's personal intervention to restore the interest rate to the original level of 6.5 per cent.
In a recent letter to the Prime Minister, Tamil Nadu chief minister J Jayalalithaa said that the state governments had been using the RIDF of Nabard as a cost-effective financing option for taking up various essential infrastructure activities in rural areas.
“The RBI has revised the interest rate for RIDF loans to eight per cent a year. Such a high rate will make RIDF loans unviable and the states will be forced to cut down on investments in rural infrastructure, which is vital for inclusive development,” the chief minister said.
“What is more shocking is that the higher interest rate of eight per cent is made applicable to the drawals after April 1, 2012, even for those projects which have already been sanctioned in the previous financial years. You will agree with me that once a project is sanctioned, it is not fair to alter the conditions during the project period. This unilateral action by the RBI has totally taken us by surprise and has upset the financial projections,” she said in the letter.
It may be noted that Tamil Nadu is one of the front-running states, both in terms of sanction of projects as well as drawal of funds from the RIDF. At present, Tamil Nadu has a bank sanction of Rs 2,184 crore for which funds will be drawn in 2012-2013 and subsequent years.
“We had proposed such massive investments using RIDF loans only on the assumption that the lending rates would remain reasonable. Now, with the increase, there will be an additional interest burden of Rs 229 crore on the projects already sanctioned and under implementation”.
