India’s finance minister P. Chidambaram on Friday kept the option of expanding the scope of the debt relief package for farmers and told Parliament that the entire sum, which is now estimated at Rs60,314 crore, would be financed by the Centre in cash, but spread over four fiscal years.
Congress Lok Sabha member Rahul Gandhi, son of Congress President Sonia Gandhi, had on Thursday sought to expand the scope of the farm loan waiver announced in Budget 2008 by suggesting a relaxation in the limit the proposal placed on land holdings and the single cut-off date for the entire country.
The finance minister’s statement on the loan waiver scheme comes ahead of a crucial Monday meeting between the United Progressive Alliance government and its key ally, the Left Front, to resolve their differences over India’s civilian nuclear deal with the US. The farm loan waiver, a populist measure, has the blessings of the Left Front.
Furnishing details of the financing of the package, comprising an estimated Rs50,524 crore debt waiver to small and marginal farmers and Rs9,790 crore worth of one-time settlement to other farmers, the finance minister said as much as Rs25,000 crore would be reimbursed to the lending institutions by 30 June 2009.
A further Rs15,000 crore would be disbursed by August 2009, completing two-thirds of the package, another Rs12,000 crore through Budget 2010 and the final instalment of Rs8,000 crore in the 2011-12 Budget.
“Financing of the package should be relatively easy given the buoyancy in (tax) revenues and efforts at expenditure restructuring,” the minister said. “Since I have been able to find Rs10,000 crore to establish the fund even in year zero (through the third supplementary demand for grants for 2007-08, presented just two days ago), this will reduce the burden in future years. Given the potential for rapid growth of the economy, the burden in any single year will not be more than 0.25% of GDP.”
According to Chidambaram, the government’s first preference would be to fund the waiver from tax revenues. If that fails, it would take recourse to its non-tax sources of revenue—including such items as dividends, interest earnings and accruals from the listing of public sector enterprises. And if this fails, the government would resort to additional borrowings, he added.
In his Budget speech on29 February, Chidambaram had announced an estimated Rs50,000 crore debt waiver for small and marginal farmers and a Rs10,000 one-time settlement scheme for other farmers. Although he had declared that the package would be implemented by 30 June, he had not announced any budgetary provision to fund it.
V.K. Malhotra, deputy leader of the principal Opposition, Bharatiya Janata Party, said the minister had no right to dictate expenditure for future governments. Mohammad Salim, a Lok Sabha member of the Communist Party of India (Marxist), and member of the parliamentary consultative committee on finance, said: “We need some time to study these figures. It’s good that the minister has come out with some details on financing the package as the Left parties have been demanding, but Rs60,000 crore is really a notional figure.”
The finance minister, however, clarified in his reply that the total of Rs60,314 crore was just a provisional estimate.
He said the Reserve Bank of India and the National Bank for Agriculture and Rural Development would submit branch-wise particulars of the overdue farm debt accounts from commercial banks, regional rural banks (RRBs) and cooperative? institutions ?by 20 March.
According to provisional estimates, Chidambaram said, about 84% of the package would benefit small and marginal farmers. In terms of institutions, he said, an estimated 55% would cover borrowers from cooperative institutions; 35%, borrowers from scheduled commercial banks; and 10%, borrowers from RRBs.
M. Govinda Rao, director, National Institute of Public Finance and Policy, said: “Most of this debt must be old liabilities, some of which must have been written off by the banks. It is not very surprising that Chidambaram has tried to account for the debt relief in this way. He has already missed his revenue deficit under the Fiscal Responsibility and Budget Management Act.”
Admitting that he had not been able to address the debt-ridden farmers who had borrowed from private moneylenders, the finance minister said he was seriously studying the issue and hoped to come up with a solution.
However, he mocked the Opposition at the outset for expressing concern over financing of the package. “It is very unlikely that Dr Manmohan Singh and, in a small way, I, would go into an examination without doing our homework....”
Paromita Shastri contributed to this story.