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Tuesday, March 11, 2008

Govt will borrow Rs 15K cr for waiver
The Centre is planning to fund the farm loan waiver package over the next 24 months and at least 25% of the total Rs 60,000 crore package will be met through government borrowings.

The waiver package will be a part of the supplementary budget that will be presented later this week. Finance minister P Chidambaram has said he will tell Parliament on Friday how the government would compensate banks for the losses incurred on account of the farm loan waiver worth Rs 60,000 crore.

“There is enough headroom for the government to raise Rs 15,000 crore,” a source said. The government expects a higher revenue collection by the close of the current financial year. The size of the expenditure budget of the government is more than Rs 7 lakh crore.

Sources in finance ministry have hinted that the both tax and non-tax revenues, and even proceeds from disinvestment may be some of the options for funding the scheme. State governments will also have a share of the burden.

The finance ministry is at present finalising the modalities of the scheme. The RBI has already sought details of NPAs and overdue from all banks by March 14. The scheme will be rolled out before July 2008.

Sources said that the advances from the rabi season in July 2006 amounted to Rs 48,000 crore. With 75% of the total advances being repaid, the government expects at least Rs 12,000 crore to be in the form of an overdue. A short term crop loan becomes overdue within a six month cycle. Other kinds of loans have a longer repayment period. Over Rs 20,000 crore worth of loans were rescheduled in 2004 due top a natural calamity.

Another Rs 10,000 crore is on account of outstanding from the Vidarbha package when loans where restructured and rescheduled in 2006. Under the Vidarbha package, loans were rescheduled in 2006, interest payments were waived off. Till April 2008, no repayment was required, and repayment would be due over the next three years. Interestingly, since these rescheduled loan accounts are standard assets as on February 29, 2008, they become eligible for the one-time settlement scheme which is being offered to large farmers, a banker said.

Of the Rs 60,000 crore, co-operative banks account for over Rs 35,000 crore, scheduled commercial banks and their RRBs account for another Rs 20,000 crore.

Under the scheme, marginal farmers holding up to 1 hectare and small farmers holding up to 2 hectares, are eligible for a complete waiver of all loans that were overdue on December 31, 2007, and which remained unpaid until February 29, 2008. Other farmers, are eligible for a one time settlement (OTS) scheme for all loans that were overdue on December 31, 2007, and which remained unpaid until February 29, 2008. Under OTS, a rebate of 25% will be given on payment of 75% of the loan.

The government has said that the fiscal deficit target for 2007-08 will be met. As against a budgeted estimate of 3.3%, the government expects to close the year at 3.1%. After presenting the Union Budget, finance minister P Chidambaram had said that it gives him enough headroom.

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