New Delhi: India’s first experiment with the Chinese model of rural development, the rural business hubs proposed by Prime Minister Manmohan Singh, is facing a financial crunch, and changes in the funding arrangement are under way to speed up the release of funds.

The business hubs are administered by the ministry of panchayati raj but their funding is linked to another scheme, the Backward Regions Grant Fund (BRGF), which is fraught with problems, particularly lack of district-level planning.

Some 12 states are failing to access BRGF funds and, as a result, the business hubs’ share of this money is not getting to them either.

“We want changes in the rules to ensure that business hubs get the money they need," said a ministry official, who didn’t want to be named.

The hubs are meant to help industry source directly from villages in sectors including handlooms, handicrafts, tourism and biofuels. They are run by local self-governance units or panchayats with the Confederation of Indian Industry in 850 blocks. Initially self-funded, they can now get up to Rs15-16 crore per district from BRGF.

Money from the fund is meant to pay local consultants for the business hubs, who prepare a district profile that helps identify possible investment hubs. That money is also meant to update rural artisans with new skills and techniques and develop critical infrastructure.

However, in states such as Uttar Pradesh, Gujarat, Maharashtra, Jharkhand, Punjab and Uttarakhand, no district planning committees have been set up, leaving the state government nothing to encourage potential investors to rural areas with.

As a result, not only will these states lose out on BRGF funds, even the allocation meant for the business hubs doesn’t trickle down.

“Without the planning committees, these states, which have over 50% of all districts, cannot access BRGF. The impact is cascading down to the hubs," the same official said.

The BRGF was allocated Rs5,000 crore in Budget 2006-07, and Rs5,800 crore in Budget 2007-08. Till October 2007, Rs1,100 crore has been released to states, and the ministry expects 67-70% of the releases would be made by 31 March.

Panchayati raj minister Mani Shankar Aiyar has now suggested to the Prime Minister’s Office that BRGF’s requirement to submit annual action plans to his ministry should be relaxed. For 2007-08, he has proposed that interim plans should suffice.