Little relief: one package, two plans

Debt-ridden farmers can expect some relief in the Budget this year.

Debt-ridden farmers can expect some relief in the Budget this year. The Union Cabinet made a start on Thursday when it approved Rs 530 crore for interest waiver on farm loans in 31 debt-ridden districts of four states. Though the government has agreed to come out with a comprehensive relief package for the entire country, there are differences between the Union agriculture and finance ministries over the structure of the relief package.

The finance ministry wants the relief package to be a one-time settlement of an estimated Rs 30,000 crore of non-performing assets (NPAs) of banking credit to farmers. But the agriculture ministry thinks that’s not enough. It wants the relief amount to waive off the overdue loans—estimated at over Rs 40,000 crore.

The agriculture ministry also disagrees with the nature of the one-time settlement package proposed by the finance ministry. While the finance ministry has proposed that farmers would have to pay only 25 per cent of the principal amount and interest on the total outstanding loan, the agriculture ministry’s contention is that the proposal will only help commercial banks, leaving co-operative banks in the lurch. Because of the heavy losses and tendency for non compliance of certain banking regulations, the cooperative banks will not get the benefit of this measure. The Agriculture Ministry believes that this will leave out a substantial number of farmers borrowing from cooperative banks.

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In contrast to the finance ministry’s proposal, the agriculture ministry wants the government to waive off all overdue loans up to a maximum of Rs 50,000. Small and marginal farmers should be offered fresh credit to save them from the clutch of private moneylenders, it argued. The ministry has proposed that an estimated Rs 50,000 crore could be waived off over the next five years and can be linked with the farmers’ repayment record.

For farmers with dues over Rs 50000, the agriculture ministry has proposed that the government should offer a liberal one-time settlement spread across five years. The financial burden of this settlement plan should be shared among the central and state governments, banks and farmers. However, the farmer’s burden should not exceed more than 20 per cent of the overdue amount. Like for small and marginal farmers, the agricultural ministry has proposed a fresh line of credit to farmers with huge outstanding loans and said the loan waiver would be linked to the farmers’ repayment record. The agriculture ministry has estimated that its proposal will cost the Centre around Rs 22,000 crore.

With both the Budget and election dates drawing closer, Prime Minister Manmohan Singh has urged Agriculture Minister Sharad Pawar and Finance Minister P. Chidambaram to work out a feasible plan before the Budget.