Finance Minister P Chidambaram said average growth in the last four years of the UPA government stood at 8.8%, reports CNBC-TV18. He was addressing Parliament on funding the debt relief package for farmers.
It will take four Budgets and possibly a future government to fund the UPA government's Rs 60,000 crore debt to farmers. The Finance Minister told the nation how he plans to fund the farm loan waiver. The Finance Minister told Parliament that the government will compensate scheduled commercial banks, regional rural banks and co-operative credit institutions fully over a period of four years starting July 2008.
“Immediately after June 30, 2008, as soon as the first supplementary for 2008-09 is approved by Parliament, Rs 25,000 crore will be released to the institutions. In Budget 2009-10, Rs 15,000 crore will be provided; in Budget 2010-11, Rs 12,000 crore will be provided; in Budget 2011-12, Rs 8,000 crore will be provided. In phasing out the package across institutions in course of time, we have been and will be mindful of the need to ensure that all institutions have ample liquidity to meet fresh credit demand,” said P Chidambaram.
The FM is confident the liberal farm loan waiver package will have a negligible impact on the fiscal deficit. It will be an additional burden of less than 0.25% of GDP every year.
“Since I have been able to find Rs 10,000 crore to establish the fund in year zero, this will reduce the burden in future years. Given the potential for the rapid growth of the economy, the burden in any single year will not be more than 0.25% of the GDP. Actually it will be 0.2% of GDP only in ‘08-‘09 and will decline in every successive year and will only be 0.1% in 2011-12,” he added.
Where will the money come from? P Chidambaram believes robust earnings will bail him out. If they don't, he has three other options.
“I am therefore very confident that we can finance a burden of this order as part of the regular Budget exercise. The source of fund to the government are tax revenues; non tax revenues, as in dividends, interests, royalties and fees; non-debt capital receipts i.e. recovery of loans in advances, premium on the sale of sequestered assets and initial listing of public sector enterprises and additional borrowing if necessary,” he stated.
The Finance Minister said the tax to GDP ratio is seen at 12.5% by FY08-end and 13% for FY09. "FY09 fiscal deficit seen at 2.5% of GDP. This deficit includes bonds issues seen at 3.6%."
The government is meeting its indirect tax mop-up target year after year, Chidambaram said. "The government far exceeded its direct tax mop-up target. A higher growth and tax buoyancy gives headroom to spend. It is able to waive farm loan on tax buoyancy, fiscal space."
Provisional estimate of farm loan waiver seen at Rs 60,304 crore, the FM said. “A relief of Rs 50, 524 crore is to be offered to small and marginal farmers. 35% of farm loan borrowers are from commercial banks. The whole farm loan waiver process is to be completed by June 30. The disbursement process will be spread over three agricultural years and four financial years.”
Relief worth Rs 9,790 crore will be provided to other farmers, he said. “The government plans to give Rs 25,000 crore debt waiver post June, Rs 15,000 crore in FY10, Rs 12,000 crore in FY11, and Rs 8,000 crore in FY12. It plans to reimburse Rs 25,000 crore to banks between July 1, 2008 and June 30, 2009.”
According to Chidambaram, the government is in a position to increase education allocation by 20% every year. “More money is being given to states for spending on health. The government plans to roll out the National Skill Development Plan by March 31. It plans to rapidly scale up the national skill plan from April.”
The Finance Minister said he is concerned over farmers in moneylenders’ clutches. “There are socio-economic inhibitions in identifying money lenders.”
FY08 food grain offtake under PDS seen at 31.3 million tonne, he added.
