Low capital base may pour cold water over firm’s stated objectives

Low capital base may pour cold water over firm’s stated objectives
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First Published: Tue, Apr 08 2008. 11 55 PM IST

The formation of the Irrigation and Water Resources Finance Corp. is aimed at extending long-term financial assistance to irrigation and water resource projects, and thus help
The formation of the Irrigation and Water Resources Finance Corp. is aimed at extending long-term financial assistance to irrigation and water resource projects, and thus help
Updated: Tue, Apr 08 2008. 11 55 PM IST
New Delhi: The ministry of water resources may have met the deadline of 31 March for registering a new company that will extend long-term financial assistance to irrigation and water resource projects, but some government officials are still not sure about its viability.
The company, Irrigation and Water Resources Finance Corp. Ltd, or IWRFC, has been set up with a paid-up capital of Rs100 crore and it is expected to help the cause of farmers across the country. However, government officials say the amount, which has been contributed by the Union government, is insignificant considering that India has an irrigation potential of 140 million hectares. Of this, only 87 million hectare is under irrigation.
The formation of the Irrigation and Water Resources Finance Corp. is aimed at extending long-term financial assistance to irrigation and water resource projects, and thus help
IWRFC was registered with the Registrar of Companies, or RoC, which is part of the ministry of corporate affairs, on 29 March. Any entity that wishes to be incorporated needs to register itself with the RoC before it starts functioning.
“The government has announced 14 national projects in Budget 2008-09 which will have an estimated cost of Rs55,000 crore. Of these, three ongoing projects alone will require an investment of Rs7,000 crore in the 11th Plan. A paid- up capital of Rs100 crore for a project of this size means nothing. The announcement of the corporation itself is just for effect?” said a senior government official working in the field of irrigation and water resources, who did not want to be identified.
In his Budget speech, finance minister P. Chidambaram had said that the intention in setting up the company is to mobilize very large resources required to fund various projects and that state governments and financial institutions will be invited to contribute to the equity.
“With the present government’s term getting over in less than a year, how does the finance minister expect to raise equity from state governments and financial institutions? Besides, the National Bank for Agriculture and Rural Development, the World Bank and Asian Development Bank (ADB) grant loans to irrigation projects. What new mechanism will the corporation bring out?” asked the official.
According to the 11th Plan document, there are 477 ongoing major, medium and minor irrigation projects. Another 309 projects are expected to be initiated during the Plan period (2007-12) at an estimated cost of Rs2.8 trillion. Since irrigation is a state subject, the bulk of this funding will have to come from state governments. According to the Planning Commission, state governments, along with the Union government (under the Accelerated Irrigation Benefit Programme), will be able to raise a total of Rs1.8 trillion during the 11th Plan.
Officials at the commission say the likely shortfall in the 11th Plan would be anywhere between Rs80,000 crore and Rs1 trillion, which state governments and financial institutions will not be able to meet.
Meanwhile, the finance ministry and the ministry of water resources have jointly begun work on IWRFC, which has its registered office in New Delhi.
“A detailed guideline for the working of the corporation is being made in the finance ministry. It will be headed by a chairman and managing director, which will be a finance ministry official of additional or special secretary level,” said a senior official at the ministry of water resources.
Besides, the corporation has been registered with two government directors, one each from the ministries of finance and water resources, and two subscriber partners from the ministry of water resources.
The announcement on IWRFC came as a surprise to water resources ministry officials. “We weren’t aware of this at all. In fact, even after the (finance minister’s) speech, there was no clarity on this issue. It was only in the last 15 days of March that a very short draft was made just so the corporation could be registered,” said the water resources ministry official.
The official added that the corporation would probably be like a public sector undertaking along the lines of Rural Electrification Corp., or REC.
REC was set up in 1969. It raises its resources by issuing bonds and through borrowings and provides loans to power sector utilities, and is a nodal agency for rural electrification.
The government official, who is questioning IWRFC’s viability, said there is a big difference in extending loans to power utilities and to irrigation projects as the end users in the second case are farmers who do not have the capacity to pay for the water they use.
But A.K. Lakhina, former chairman and managing director, REC, is optimistic and said if the corporation is being set up on the lines of REC, it will be successful. “The government, however, needs to make sure that the revenue stream is identified. If the implementing agencies are going to be state governments, they can finance the project through their respective state budgets. But I feel that will not be adequate. Cultivators should also be made to pay for the canal, command area, pond or tank from where they are taking water,” he said.
He added that the recovery mechanism has to be strong, both from cultivators and the states.
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First Published: Tue, Apr 08 2008. 11 55 PM IST