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MANNA FROM HEAVEN: File picture shows farmers praying for rain before the monsoon picked up.

NEW DELHI, Dec. 18

BOWING to pressures from the Agriculture Ministry and State Governments, the Centre has decided to grant a complete interest waiver on crop loans availed of by farmers during the drought-affected 2002 kharif season. The move - formally announced by the Prime Minister, Mr Atal Bihari Vajpayee, in Parliament today - would result in banks, especially co-operatives, foregoing interest income of over Rs 2,000 crore.

It is not clear whether banks will be reimbursed in full for the interest income foregone. A senior Finance Ministry official told Business Line that the Centre would provide reimbursement of up to Rs 500 crore and the remaining liability may have to be borne by the State Governments and the banks themselves. "We are still to work out the exact distribution of the total liability amount," the official said.

In any case, farmers would be entitled to obtain the interest waiver directly from their banks concerned, for which the Reserve Bank of India (RBI) will be issuing detailed guidelines shortly. "The banks will have to forgo the interest income due to them in the first instance. The reimbursement will come only later and till this happens, they would have to assume the liability," the official added.

During kharif 2002, banks are estimated to have disbursed short-term crop loans totalling Rs 20,809 crore in the 14 drought-affected States, the interest liability on which would have worked out to Rs 2,029 crore. Of this, the share of co-operative banks has been put at Rs 1,180 crore, with the share of commercial banks and regional rural banks amounting to Rs 619 crore and Rs 230 crore respectively. Inclusive of term loans, the total interest payable by farmers for a one-year period - from July 2002 to July 2003 - has been assessed at Rs 6,040 crore.

The Centre had earlier announced that the entire annual interest of Rs 6,040 crore on both these types of loans would be deferred and the liabilities spread over several years. Besides, it was decided to reschedule the crop loans into term loans to be recovered over five years for small and marginal farmers and three years in the case of other farmers.

But in his suo moto statement tabled in Parliament today, the Prime Minister announced that "in order to further mitigate the hardship of our farmers in these (drought-hit) States, I have now, decided to waive completely, the first year's deferred liability of interest on kharif loans, as a one-time measure."

Mr Vajpayee also announced an additional release of Rs 555 crore as agricultural input subsidy to all farmers up to a ceiling of two hectares. The Centre had earlier provided an amount of Rs 1,490 crore towards this purpose, translating into a benefit of Rs 1,000 per hectare in unirrigated holdings, Rs 2,500 in irrigated holdings and Rs 4,000 per hectare in perennial crop holdings. But this facility was restricted to only small and marginal farmers, owning up to two hectares of land.

"In view, however, of the severity of the drought, I have decided that this agricultural input subsidy will now be extended further to cover all other farmers too, for both the sown and unsown areas, up to a ceiling of two hectares, as a one-time measure and in relaxation of existing guidelines.

The States will, therefore, now receive in excess of a further Rs 55 crore for combating drought, to be met from either the Calamity Relief Fund or the National Calamity Contingency Fund," Mr Vajpayee stated.

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