Cheap money ahoy: FMs mantra

Updated: Mar 1 2006, 05:30am hrs
Finance minister P Chidambarams Budget 2006-07 brings a special package aimed at enhancing farmers access to credit at cheaper rates. Acknowledging the severe difficulties faced by farmers in the last two years, the finance minister says he is prepared to go the extra mile to their aid. Banks will be asked to lend more, short-term interest rates will be eased, farmers given one-time debt relief, and micro credit will be strengthened.

Referring to the fact that farm credit is again likely to cross the target of Rs 1,41,500 crore for fiscal 06, the FM proposes to ask banks to hike credit to Rs 175,000 crore in 2006-07 and add another 50 lakh farmers to their portfolio. With this, Mr Chidambaram expects to exceed his target of doubling farm credit in three years.

Against the backdrop of farmer suicides receiving wide media attention, the minister spoke of his governments compassion even in the face of severe fiscal constraints.

For starters, he proposes to grant relief to the farmers who took loans from scheduled commercial banks, RRBs and PACS for Kharif and Rabi 2005-06. An amount equal to two percentage points of borrowers interest liability on the principal amount up to Rs 100,000 will be credited to their bank account before the current fiscal ends. A provision of Rs 1,700 crore has been made for this.

Admitting that tenant farmers are not adequately served, he has asked the banks to open a separate window for self-help groups or joint liability groups of tenant farmers.

The FM also assures farmers of cheaper short-term credit from the cooperative credit structure and regional rural banks. Farmers would get short-term credit at 7%, with an upper limit of Rs 300,000 on the principal amount, with effect from Kharif 2006-07. A detailed statement on the subvention to be provided to Nabard to maintain the softer refinance flow will follow in due course.

Referring to the lack of credit access for small and marginal farmers as per the NSS 59th Round findings, the minister has proposed a Committee on Financial Inclusion. The Committee will identify the reasons for exclusion, and suggest a plan for designing and delivering credit to such households.

A Bill to provide a statutory framework for the promotion, development and regulation of the micro finance sector will also be introduced in this session. An additional 3,85,000 SHGs will be credit linked.

Nabard will be asked to open a separate line of credit for financing farm production and investment activities through SHGs.