Saturday, May 24, 2008

Govt. On Friday Expanded Farm Debt Waiver Scheme

NEW DELHI: The government on Friday rolled out an expanded farm debt waiver scheme, which will cost the exchequer a whopping Rs 71,600 crore, 20% higher than the initial estimate of Rs 60,000 crore. The scheme will now include more than four crore farmers and will also cover those with landholdings in excess of two hectares.

In line with demands from political party leaders, including Congress general secretary Rahul Gandhi, farmers in drought-prone areas covered under the Prime Minister’s relief plan have also been included in the scheme.

In a separate development, RBI on Friday asked banks to take necessary steps to complete the debt waiver scheme by June 30.

The expanded loan waiver scheme, which was announced in the Union Budget 2008-09, will now include farmers engaged in allied activities such as poultry, dairy farming. Direct agricultural loans taken under a Kisan Credit Card, as well as loans of self-help and joint-liability groups would also be covered.

The government has also decided to waive off restructured loans, including those under the Vidharba package and calamity relief, whether or not they were overdue.

Briefing reporters after a Cabinet meeting, chaired by Prime Minister Manmohan Singh, finance minister P Chidambaram said: “Farmers deserve this support. We are only discharging the debt we owe to the farmers. The central government is taking over the debt and will reimburse the banks. All small and marginal farmers will get full debt waiver, while 60%-65% of large farmers will also get full debt waiver. This is why the cost of the scheme has increased.”

While unaudited cost is pegged at Rs 71,600 crore, the FM said the audited estimate was Rs 66,000 crore. The cash outgo from the government as reimbursements to banks is seen at Rs 60,416 crore for small & marginal farmers and Rs 7,960 crore for others, according to estimates by RBI and Nabard.

Loans not eligible under the scheme include advances against pledge or hypothecation of agricultural produce other than standing crop, agricultural finance to corporates, partnership firms and societies other than co-operative credit institutions.

If a farmer has taken two separate loans — for instance a short-term production loan and an investment loan — they shall be counted as two distinct loans, and the scheme would apply to the two loans separately. Direct agricultural loans include short-term production loans and investment loans provided directly to farmers for agricultural purposes.

A short-term production loan is one given in connection with the raising of crops and which is to be repaid within 18 months. An investment loan is for direct agricultural activities, including asset financing and allied activities such as dairy, poultry farming and biogas generation. The amount eligible for debt waiver or relief, in case of a short-term production loan, includes the principal and the interest.

While small and marginal farmers are eligible for debt waiver, others are eligible for a one-time settlement (OTS) scheme.

The debt waiver scheme will cover all loans disbursed to farmers between March 31, 1997, and March 31, 2007, and overdue as of December 31, 2007, and remaining unpaid until February 29, 2008.

Under OTS, the farmer will be given a rebate of 25% of the ‘eligible amount’, or Rs 20,000 (whichever is higher). Further conditions have also been spelt out on the deadline before which the repayment has to be made. Banks cannot charge interest on the eligible amount after February 29, 2008.

However, in the case of investment credit for allied activities, the land holding is not germane, and hence, those farmers, whose principal loan amount is Rs 50,000 or less, will be classified as ‘small and marginal farmers’, where the principal amount exceeds Rs 50,000, he would be classified as ‘other farmer’.

Mr Chidambaram said a scheme of this kind was not contemplated by the NDA government despite being in power for six years. “We have been able to muster courage at the end of four years, as it is a massive scheme. Only when I was confident and Prime Minister was confident of the implementation did we announce the scheme,” he added.

Guidelines will soon be issued to all lending institutions, including banks, rural regional banks, co-operative credit institutions and local area banks. Under the scheme, every bank branch would be required to prepare a list of farmers, along with the amount of loan waived, so that they can claim benefit without problems.

“This list would have to be displayed on the notice board,” he said. The farmers will not be required to submit any documents and will receive a certificate from the bank with the details of the waiver. The list will have to be put up on or before June 30, 2008.

He said the banks have also been asked to set up grievance cells to address the farmers problems with regard to the scheme in a time-bound manner. Besides, a high-level body headed by the secretary, financial services, and including secretary agriculture, RBI deputy governor, Nabard chairman and CMDs of two public sector banks would be set up to monitor implementation.

“All executive directors, bank chairmen have been asked to fan out across the country. Chief Ministers would be requested to co-operate. I will also travel for on-spot verifications to see how lists have been put up by banks and how farmers are getting relief.”

“Banks are in no way prejudiced. They have welcomed the scheme. Extensive consultations have been held with them about the scheme and its implementation,” he said.

“All claims will be on the central government. RBI will be the nodal agency for scheduled commercial banks and Nabard for RRBs and co-operative banks,” he said.

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