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Fiscal management policies led to closure of funding avenues: Chidambaram

Shashi Ashiwal

Helping hand: The Nabard Chairman, Dr Y.S. P. Thorat (left), and the Union Finance Minister, Mr P. Chidambaram, at the Silver Jubilee Celebrations of Nabard in Mumbai on Friday. —

Our Bureau

Mumbai, July 20 The Union Government in consultation with the Reserve Bank of India is evolving a more sustainable solution to help the National Bank for Agriculture and Rural Development raise resources and lend to farmers at concessional rates.

The Union Finance Minister, Mr P. Chidambaram, said the compulsions of ongoing fiscal management policies and financial reforms together with market orientation have resulted in the withdrawal of many funding avenues for Nabard.

“Nabard has to increasingly depend on market borrowings, whereas it is expected to lend at concessional rates. This has led to declining margins for Nabard although it is being provided some subvention support,” Mr Chidambaram said.

“I am aware of the need to search for a longer lasting and more sustainable solution in this regard,” he added.

Mr Chidambaram was speaking at the Silver Jubilee Celebrations of Nabard.

The Government currently provides subvention to different categories of banks and Nabard so that banks can lend to farmers at 7 per cent interest.

Nabard plans to raise about Rs 23,000 crore in 2007-08, almost double that raised last year, to fund the farm and non-farm sectors. Its market borrowings in 2006-07 were Rs 10,899 crore at 8.69 per cent as against Rs 8,194 crore at 5.6 per cent in 2005-06.

On the Microfinance Bill, which was recently introduced in Parliament for the regulation of microfinance organisation, Mr Chidambaram said the Bill gives Nabard a central role.

“Nabard should gear itself to take the microfinance movement to both the farm and non-farm sectors of the rural economy, he said.

The Finance Minister said that it should offer its services as consultant to state governments to draw up district-specific and state-specific plans.

Speaking on the occasion, the Union Minister for Agriculture, Mr Sharad Pawar, stressed on the need to amend the Nabard Act.

The Minister expressed his concern about the significant decline in the number of farm loan accounts despite the increase in volume of credit flow.

The number of loan accounts has come down from 413.36 lakh in 2004-05 to 397.39 lakh in 2006-07.

“This means that there are a large number of farmers who are becoming defaulters and are denied the accessibility to institutional credit sources. This is an issue that needs to be looked into urgently,” he said.

More Stories on : Farm credit | Agricultural Institutions

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