Farmers in for a relief package of Rs 4,300 cr

NEW DELHI: Big loan waivers are back. back. Prime Minister Manmohan Singh is set to announce the first instalment of debt relief to the tune of Rs 1,300 crore for the distressed farmers of the six most backward districts of Vidarbha on Friday. The debt relief would include waiver of over Rs 1,000 crore of debt, apart from debt rescheduling.

The government has identified 31 districts where farmer sucides have been reported, for distress relief. These states are spread over Maharashtra, Andhra Pradesh, Karnataka and Kerala. Since it is not feasible to restrict debt waiver to the farmers of only one state, the debt relief package is slated to balloon to a tidy sum. This would strain bank balance sheets or the exchequer or both.

The debt relief to the farmers will have a cut-off date of June 30, ‘06. Sources said that financing for the loan waiver would come directly from the Centre through budgetary support and not to burden cooperative credit institutions.

Co-operatives have already been crying out loud for a support of close to Rs 22,000 crore and have been unable to give loans to farmers at 7% interest rate with the upper limit of Rs 3 lakh as announced in the ‘06-07 Budget. The government had indicated that it would make Rs 2,500 crore available to banks as farm interest rate subsidy, but has not yet disbursed any funds.

The farm relief package as a whole is likely to be spread over three years starting this financial year, it is understood. The Maharashtra loan waiver is part of a total package of Rs 4,313 crore for irrigation, extension services, etc.

It is understood that three options have been proposed for the larger package to be put in place later. “The decision will be taken depending on the sort of financial burden the government is capable of absorbing,” official sources said, adding, “Any subsidy for the waiver will have to be first factored into the Budget, the modalities are yet to be worked out.”

Public sector banks (PSBs) have not yet been apprised of their commitments towards the loan waiver package. A senior government official said that the banks can’t afford to write off loans of such magnitude without budgetary support.

While the interest component of the loans may be waived off, it will be difficult for the banks to write off the principal amount, it is maintained.

Any proposal to waive off the total outstanding loans worth Rs 24,000 crore in the 31 districts, in fact, may spell disaster for public sector banks. Banks are already witnessing a pressure on their profitability due to narrowing Net Interest Margins (NIM).

The districts for which the distress relief package will be announced on Friday could include Wardha, Akola, Yavatmal, Amravati, Chandrapur, Bhadara and parts of Nagpur for the present. These are districts which have registered high suicide rates over the last two years among cotton farmers and each farming family has an average loan burden of at least Rs 50,000.

Most of those worst affected own up to five acres. According to an Indira Gandhi Institute of Development Research report, farmers in these districts are exposed to both yield as well as price shocks for their cotton crops.

Increased supply of cotton in ‘04 was worldwide leading to a fall in its prices. But, sources acknowledged, these may not be the worst affected of the 31 perennially drought-struck districts identified by the government for long-term relief measures.

In fact, six districts in neighbouring Andhra Pradesh have that dubious distinction and another half dozen districts in Karnataka are neck and neck in farm distress levels.

A key meeting of the Agricultural Coordination Committee here earlier this week under the aegis of the PM had recommended that, in all 31 districts, any relief package should consider making loans up to Rs 3 lakh collateral free.

It also said that only 24% of farmers in distress whose accounts were restructured under farm credit package got fresh finance for ‘04-06 and that only 46% of total cultivators who had their debt restructured got much-vaunted Kisan Credit Card up to now. A new deadline for issue of KCC to all cultivators by March ‘07 latest was suggested.