FM tunes in with credit package for farmers

Just hours before the United Progressive Alliance held a meeting to review the policies of the government and the pace of their Common Minim...

Just hours before the United Progressive Alliance held a meeting to review the policies of the government and the pace of their Common Minimum Programme, Finance Minister P Chidambaram had a little gift for the coalition. In keeping with the UPA’s focus on the farm sector, he unveiled a package that promises to raise agricultural credit by 30 per cent in a single year to as much as Rs 1,05,000 crore.

Stressing repeatedly on the pain of the farmers—many of whom have been forced to turn to moneylenders—he said loans would be made available to some 50 lakh new farmers. Existing loans will be restructured and one-time settlement schemes would be announced for farmers in distress, he said.

Careful to send out the right signal, the Finance Minister’s package stopped short of overtly-populist policies like writing off the loans—as was the case in the days of loan melas—or even reducing interest rates.

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Instead, banks would be asked to club outstanding interest with the principal amount as on March 2004, said Chidambaram. The farmers would be allowed to repay this over a five-year period at the current interest rate with an initial moratorium of two years.

‘‘This is the first step towards redeeming our promise in the Common Minimum Programme to double the flow of agriculture credit in three years,’’ he said.

	HIS PACKAGE

			• Agri credit up by 30 per cent to Rs 1.05 lakh crore • Kisan Credit Cards to be pushed to cover over 4.14 cr farmers • Loans for 50 lakh new farmers Debt restructuring for farmers: • Interest & principal outstanding till March, 2004 to be clubbed – payable over 5 yrs • OTS scheme for small farmers to settle pending loans • New scheme by NABARD to settle defaults of farmers ineligible for loans • Farm credit from banks

Many farmers are currently borrowing at 30 to 40 per cent from moneylenders. But he also insisted that the move would not place any financial burden on the government—it only aimed at ‘‘unclogging the channels’’ as banks had funds to lend.

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The government wanted the banks to look upon agriculture credit as commercially profitable, said Chidambaram.

This provoked a series of questions from the media: Why weren’t the banks already doing so? If they had to adhere to RBI’s prudential norms in lending money to farmers, then how would agriculturists with no collateral be helped? Were the banks getting their arms twisted?

The Finance Minister categorically ruled this out. He said that the action plan had been prepared by NABARD in consultation with the Indian Banks’ Association and it aimed at raising farm credit to Rs 1,05,000 crore in 2004-05 from Rs 80,000 crore in the previous year.

Of this, commercial banks would lend Rs 57,000 crore while regional rural banks (RRBs) would offer Rs 8,500 crore and cooperatives another Rs 39,000 crore.

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NABARD and IBA will meet chairpersons of commercial banks in Mumbai on June 22 to discuss ways to implement the policy. This would be followed by a similar meeting with cooperatives and RRBs on June 23 and 24, he said.

The Finance Minister did not rule out further reduction in agri-lending rates by banks, if they could afford it.

‘‘Interest rates on farm loans have already been shed. Banks have voluntarily brought it down to 8.5 per cent. But if the banks can reduce it further, they are free to do so,’’ he said.