Proposal for waiver of unpaid loans in the coming budget

According to the sources in Agriculture Ministry the Union government has plans to release a debt relief package for farmers.

Under the scheme government is thinking of waiving off the unpaid loans of the small and marginal farmers and to give a big relief for the big farmers over four years.

Approximately 30 million farmers had left the institutional credit system as they were unable to pay back dues.

On Monday, a discussion was held between Union Agriculture Minister Sharad Pawar and Finance Minister P. Chidambaram in which they agreed on the broad contours of the policy, which would be finalized at the Prime Minister’s level.

“We had a meeting. We discussed the package. It involves a huge investment but in principle we have agreed. Now we will meet the Prime Minister,” Mr. Pawar told The Hindu here.

At the Prime Minister’s level the decision on raising of funds will be taken. The funds needed should be taken by levying a “farmers’ rehabilitation cess or surcharge” or through a budgetary provision by diverting resources. The total amount for over four years is expected to be about Rs. 70,000 crore.

The Agriculture Ministry has planned imposition of a one per cent cess on direct taxes and two per cent on indirect taxes. This is expected to capitulate about Rs. 8,500 crore per annum.

There is also a proposal of setting up of a credit risk fund, called the National Agriculture Stabilization Fund, to cover the risk of future default due to reasons beyond the farmers’ control.

Under the package to be announced in the budget proposals, the Ministry have plans of giving big relief to the small and marginal farmers owning land up to two hectares, by waiving off the entire over dues, an outgo of about Rs. 25,000 crore.

Around seventy per cent of the farmers come under this category who had availed themselves of loans.

For the rest of the farmers, there will be separate one-time settlement (OTS) scheme. It will be shared among the government, farmers and banks over four years. The farmers who have been given debt relief will be eligible for fresh credit.

The total overdue in the case of direct agriculture advances has been estimated to be of Rs. 91,200 crore.

From this, the Non-Performing Assets have been estimated at Rs. 31,200 crore, the overdue above one year at about Rs. 30,000 crore and the less-than-one-year overdue at Rs. 30,000 crore.

The Ministry is also planning to give a three percent interest grant to those who are paying back their loans regularly, such as bringing down the rate of interest from seven to four per cent.

This will be done with the recommendation of the National Commission on Farmers.