Farmers to get Loan waiver, credit risk fund
By Vaibhav Aggarwal
Jan 23, 2008
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New Delhi: The Government of India (GOI) is set to waive the loans of small and marginal farmers and provide relief to the big farmers over the next four years. An in-principle agreement was reached on this matter between the Union Agriculture Minister Sharad Pawar and Finance Minister P. Chidambaram on Monday, which is now expected to be finalized at the Prime Minister's level. This debt relief package is expected to cost around Rs. 70,000 crore over the next four years.

On the issue of raising the funds required for this massive waiver, imposition of one percent cess on direct taxes and two percent cess on indirect taxes has been proposed by the Agriculture Ministry. This cess is expected to generate a sum of around Rs. 8,500 crore per annum.

It is estimated that around 30 million farmers will be affected by this debt relief package. Small and marginal farmers having land up to two hectares will have their entire loan waived. More than 70 percent of the farmers who have taken loan fall under this category.

Other farmers will be provided with a One time Settlement (OTS) scheme and the amount will be shared among the banks, farmers, and the government over the next four years. All the farmers who have got their debt waived will be eligible for fresh credit. GOI is also proposing to setup a credit risk fund, which will cover the risk of defaults by farmers in future due to circumstances beyond their control. This fund will be called the National Agriculture Stabilization Fund. A three percent reduction in interest is also proposed for the farmers who pay back their loans regularly.

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