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The "New Deal" for rural India

Agriculture and The Rural Economy

Agriculture and The Rural Economy Boosting agricultural growth through diversification and development of agro-processing is one of the objectives of the NCMP. The Prime Minister, in his address to the Nation on June 24, 2004 promised a "New Deal" for rural India. This New Deal is not only essential for rural development and welfare, but also essential for achieving sustained overall annual growth of 7-8 per cent and generating employment.

The agriculture sector requires massive investments. Such investments have to be through credit-enabled private investment and enhanced public investment. I also intend to use fiscal instruments to boost investment in agriculture.

It is my intention to double the flow of agricultural credit in three years. We have made a beginning by announcing a comprehensive policy on agricultural credit on June 18, 2004. The policy has been received well and will be fine-tuned, if necessary.

Government has entrusted the implementation of the policy to the public sector and private sector banks, the regional rural banks (RRBs) and the cooperative banks.

Each RRB has a sponsor bank. I propose to hold each sponsor bank squarely accountable for the performance of RRBs under its control. RRBs that adopt a new governance standard and that abide by the prudential regulations will qualify for receiving funds from the Government for their restructuring.

The third arm for delivering farm credit is the cooperative banking system. Unless cooperative banks are healthy and creditworthy, it would not be possible to reach credit to every farmer in need of credit. The situation is grave. In order to find a durable solution, I propose to appoint a Task Force to examine the reforms required in the cooperative banking system including the appropriate regulatory regime. The Task Force will be requested to act with all deliberate speed and submit its report by October 31, 2004.

Irrigation, Rural Infrastructure
The Accelerated Irrigation Benefit Programme (AIBP) was introduced in 1996-97 and was allotted large funds year after year. Yet, out of 178 large and medium irrigation projects that were identified, only 28 have been completed. The programme is being restructured. Truly last mile projects that can be completed by March 2005 will be given overriding priority, and other projects that can be completed by March 2006 will also be taken up in the current year. Next year we shall move the goal-post to March 2007, the year after to March 2008, and so on. I have provided a sum of Rs.2800 crore to the AIBP this year.

The Rural Infrastructure Development Fund (RIDF) was established in NABARD in 1994-95. Five months ago, a decision was taken to close the RIDF and establish, in its place, another Fund with slightly different objectives. Many State Governments and many honourable Members have opposed the closure of RIDF. In deference to their wishes, and in tune with my own thinking, I have decided to revive the RIDF. RIDF’s guidelines have been revised, and a corpus of Rs.8000 crore will be provided for RIDF during 2004-05.

Restoring water bodies
I now turn to one of my big dreams. Water is the lifeline of civilization. We have been warned that the biggest crisis that the world will face in the 21st century will be the crisis of water. Water is indeed a renewable resource but, in any given year, it is not inexhaustible. The crisis of water has affected the lives of millions of our fellow citizens. In some cities, whole households keep awake to receive one or two buckets of water well past midnight. In rural areas, the girl child is often pulled out of school in order to fetch water. I am deeply concerned about the impending crisis. I therefore propose an ambitious scheme. Through the ages, Indian agriculture has been sustained by natural and man-made water bodies such as lakes, tanks, ponds and similar structures. It has been estimated that there are more than a million such structures and about 500,000 are used for irrigation. Many of them have fallen into disuse. Many of them have accumulated silt. Many require urgent repairs.

I therefore propose to launch a massive scheme to repair, renovate and restore all the water bodies that are directly linked to agriculture. In the current year, we shall begin with pilot projects in at least five districts, and we shall select at least one district in each of the five regions of the country. The estimated cost is Rs.100 crore. Funds for the five pilot projects will be drawn from existing programmes such as SGRY, PMGJSY, DPAP, DDP and IWDP. Once the pilot projects are completed and validated, Government will launch the National Water Resources Development Project and complete it over a period of 7 to 10 years.

Funds will not be a constraint for implementing the Project. For instance, Life Insurance Corporation of India invests, on an average, Rs.3000 crore per year in water-related programmes. I also intend to pose this Project to multilateral agencies for funding. It is my hope that by the beginning of the next decade all water bodies in India will be restored to their original glory and that the storage capacity of these water bodies will be augmented by at least 100 per cent.

Water harvesting
Water harvesting schemes, specific to an area or village, have been found to be extremely useful. Such schemes are supported by a number of credit institutions. However, farmers belonging to the Scheduled Castes and Scheduled Tribes rarely benefit from such schemes. In order to help these farmers, Government will launch a nationwide water harvesting scheme. The scheme will cover one lakh irrigation units at an average cost of Rs.20,000 per unit. NABARD will lend the money on easy terms and no margin money will be charged from the borrower. Government will provide a 50 per cent capital subsidy through NABARD, and the estimate for the scheme is Rs.100 crore.

Flood control
Thousands of lives and thousands of head of cattle are lost every year due to floods. Floods are perennial in States like Assam, West Bengal, Bihar and Uttar Pradesh. The NCMP envisages full Central support to flood control works in inter-State rivers and international rivers. The Brahmaputra Board has prepared a plan for anti-erosion and flood control works in the Brahmaputra and Barak valleys. A programme of flood control and anti-erosion will be launched in the current year. A similar programme is being implemented in the Ganga-basin States of Uttaranchal, Uttar Pradesh, Bihar, Jharkhand and West Bengal. Rs.30 crore has been allotted in the current year and additional funds will be provided to keep pace with the progress of works.

India is self-sufficient in wheat and paddy but deficient in other agricultural produce. The time has come to encourage our farmers to diversify into areas such as horticulture, floriculture and oilseeds. The Anand model has been a great success in milk and milk products. Government proposes to launch a National Horticulture Mission. The goal is to double horticulture production from the current level of 150 million tonnes to 300 million tonnes by 2011-12. I invite States to join hands with the Government in launching this mission. One of the steps that States will be encouraged to take is to emulate the Anand model and establish a State Level Cooperative Society for promoting horticulture.

Oilseeds is another critical area. Last year, we produced 25 million tonnes of oilseeds, but we also imported US$ 2.5 billion of edible oil. Government will facilitate farmers to diversify into oilseeds by promoting superior seed-technology and through an appropriate policy of price support.

India must become a single market for all products, particularly agricultural produce. The existing Acts governing agricultural produce marketing committees have outlived their utility. The Government has circulated a model law. So far, ten States have initiated legal or administrative action for ‘direct marketing’ and ‘contract farming’ arrangements in line with the model law. I urge all States to enact the model law at an early date.

Research and Development
 Agricultural research and development is an area which deserves special attention. The Indian Council of Agricultural Research (ICAR) is a beneficiary of the scheme under which every commercial rupee earned by ICAR, incrementally, is matched by another rupee from the Budget. Besides, ICAR receives funds from the Technology Development Board in respect of projects that are commercially viable. Agricultural research must be expanded rapidly to new frontiers such as bio-technology, vaccines and diagnostics. There must be a special focus on farming in drylands and unirrigated areas. The allocation for 2004-05 is Rs.1000 crore (which is an increase from Rs.775 crore in BE 2003-04), and I propose to make further allocations during the course of the year.

The Small Farmers Agri-business Consortium (SFAC) was set up in 1994. Although SFAC started functioning from 1998, its corpus stands at a meagre Rs.10.95 crore. In my view, SFAC should provide venture capital to projects and must be run, preferably by a banker, on purely business lines. The MS Swaminathan Research Foundation has identified 13 districts where there is a huge potential for agri-businesses and an appetite for investment of nearly Rs.170 crore. The Ministry of Agriculture has initiated action to improve the governance of SFAC, including the appointment of a banker as the chief executive. For my part, I propose to provide the necessary additional capital that SFAC will require to aggressively promote agri-businesses.

Risk mitigation
The Agricultural Insurance Company (AIC) was incorporated in December 2002. The National Agricultural Insurance Scheme (NAIS) which insures the yield or crop is in operation since Rabi 1999-2000. AIC is redesigning the scheme. We shall continue with the scheme and make another evaluation. Meanwhile, a pilot scheme insuring farm income (as opposed to crop) has been launched in 19 districts across 12 States during Rabi 2003-04. Government has decided to extend the scheme to Kharif 2004 in order to assess its feasibility. I wish to add that a weather insurance scheme appears to be more promising, at least in the design. AIC is introducing the scheme on a trial basis in 20 rain gauge stations in the current crop season. It is difficult to tell at this stage which of the three schemes will be successful. Agricultural insurance as well as livestock insurance are complex products and have to be designed with care. I wish to re-affirm Government’s commitment to provide insurance cover to farming and livestock.

Sustainable growth depends upon the availability of efficient infrastructure. Government is committed to removing the inadequacies in infrastructure facilities through a mix of policy and fiscal measures.

Inter-Institutional Group
An Inter-Institutional Group in the power sector has succeeded in bringing 6 power projects to financial closure. Another 10 projects are on the verge of achieving financial closure. The concept can be extended to some other infrastructure sectors. I am glad to announce that IDBI, IDFC, ICICI Bank, SBI, LIC, Bank of Baroda and Punjab National Bank have formed an Inter-Institutional Group (IIG). They will pool their resources on a callable basis, and a sum of Rs.40,000 crore will be made available as and when necessary. The IIG will ensure speedy conclusion of loan agreements and implementation of infrastructure projects. Initially, airports, seaports and tourism will be the target sectors of the IIG.

Water supply
The Rajiv Gandhi Drinking Water Mission was intended to be implemented in the mission mode. In recent years, however, new programmes have sprung up obscuring the original mission. More than 75,000 habitations are yet to be provided adequate drinking water. Government intends to bring all drinking water schemes under the umbrella of the Rajiv Gandhi Drinking Water Mission.

The Accelerated Rural Water Supply Progamme (ARWSP) has been allocated Rs.2610 crore in the current year. It will focus on renewal of water sources and on serving uncovered and partially covered habitations. Panchayati raj institutions will be encouraged to plan, implement, own, operate and maintain the rural water supply schemes in consultation with the State Governments. Funds will be devolved on Panchayati raj institutions to implement the ARWSP.

Likewise, the Urban Water Supply Programme is in operation in urban areas. 2151 towns qualify for consideration under the programme. In the current year a provision of Rs.151.25 crore has been made.

The city of Chennai and other cities suffer from acute scarcity of drinking water. It is proposed to install the first large desalination plant near Chennai in the State sector, and more such plants will be installed along the Coromandel coast. A desalination plant with a capacity of 300 million litres per day (MLD) is estimated to cost Rs.1000 crore, and there will be other costs for transmission pipelines and a captive power plant. It is proposed to implement the project through public-private partnership.

Sethusamudram Ship Canal Project
The Sethusamudram Ship Canal Project is a longstanding
demand – nay dream – of the people of peninsular India. I am happy to inform the House that the Environmental Impact Assessment study of the project has been completed by the National Environmental Engineering Research Institute (NEERI), Nagpur. NEERI is now preparing the techno-economic feasibility report and the report is expected to be submitted shortly. The Ministry of Shipping proposes to establish a special purpose vehicle (SPV). The SPV will raise funds for the project and Government will participate in the funding through a mix of equity support and debt-guarantee.

International Container Transshipment Terminal (ICTT) at Vallarpadam
Government attaches high priority to the development and expansion of port infrastructure. Presently, because of inadequate draft and cargo handling infrastructure, and partly due to locational disadvantages, mainline vessels often skip Indian ports. Containers from India are carried to their final destination after transshipment at Colombo, Dubai and other neighbouring ports. Kochi has locational advantages compared to other major Indian ports since it is closer to the main sea routes. Government will facilitate the construction of an International Container Transshipment Terminal (ICTT) at Vallarpadam in Kochi port on Build, Operate and Transfer (BOT) basis.

Rural housing
Indira Awas Yojana (IAY) has been the main instrument to provide housing to Scheduled Castes and Scheduled Tribes as well as to the non-SC/ST rural poor. Built into IAY is a credit-cum-subsidy scheme for rural households. A subsidy upto Rs.10,000 and loan upto Rs.40,000 are provided to eligible households. The allocation for IAY in BE 2003-04 was Rs.1710 crore. In the current year, I propose to raise the allocation to Rs.2247 crore and, if more money is needed, it will be found within the enhanced Plan outlay.

In order to complement IAY, the Golden Jubilee Rural Housing Finance Scheme was launched in August 1997 to give a boost to rural housing. The response has been encouraging, and 10.26 lakh dwelling units have been financed so far. However, the number appears to have stagnated at about 180,000 per year in the last three years. The scheme deserves a further stimulus. I am happy to announce that the National Housing Bank has offered to reduce the rate of refinance by 25 basis points this year. RBI has agreed to revise the norms of re-payment for rural housing loans by banks, so that the instalments coincide with crop cycles. A major impediment to credit for rural housing is absence of proper title to the land. The Government of West Bengal has made a law to simplify the creation of security. It appears to me that the law deserves to be emulated by other States. With these changes, I believe it is possible to set a higher target of 250,000 rural housing units per year.

The Agric. Reforms By The Pak. Government

Musharraf announces agricultural package

President General Pervez Musharraf has announced a comprehensive agricultural package aimed at providing relief to the farmers.

Addressing farmers' convention here on Thursday, he announced abolishment of sales tax and withholding tax on the import of all agricultural implements not manufactured in the country.

The prices of DAP fertiliser have been reduced by Rs 100 per bag. The new prices will be effective on all the new imports from July 1.

Musharraf said due to steady rise in the demand of tractors and increased availability of agricultural credits, the deletion for the tractors manufactured in the country has been revised to 40 percent in the first year and eventually 100 percent during next five years. This would encourage new entrants in tractor manufacturing in Pakistan.

The president said, in addition, the import of new tractors below 35 HP and above 100 HP has been allowed with only 10 percent duty. There will be no general sales and withholding tax. This measure will not hurt the tractor industry in the country, as they do not manufacture this range of tractors.

The president also announced abolishment of the duty structure on raw materials used for manufacturing pesticides.

He said the duty structure, which is being announced in the budget, would provide local manufacture more advantages.

President Musharraf while directing the concerned authorities to revise the Fertiliser Policy by the end of this month said that the new policy should encourage and increase urea production capacity so that farmers would get realistic cost.

In another major relief to the farmers, the president announced that the interest rate of Zarai Tarraqiati Bank is being brought down from 14 percent to 9 percent from the next month.

The new rate will be charged for all types of new loans, including loans for tractors and tube-well so that maximum number of people could benefit. Those customers who pay back their loans on time will be charged only 8 percent of interest for next year.

The president also announced that the powers of Zarai Tarraqiati Bank for arrest and imprisonment of the farmers for not returning their loans are being abolished with immediate effect as such powers have only been used against the poor and the weak.

In order to provide major relief to those farmers having outstanding agricultural loans, the president said loans cases of up to Rs 500,000 defaulted till December 31, 2000 can be settled on the payment of 50 percent of the outstanding amount.

This concession will benefit about 250,000 farmers. Keeping in view the hardships faced by the farmers of Balochistan owing to prolonged drought the president announced special concession for them.

He said those farmers having outstanding loans of Rs 200,000 can settle their cases on the payment of 25 percent of the principal amount.

He said as water channels are the lifeline of farmers, therefore, a gigantic project is being undertaken under which 87,000 Kutcha Khalas of Pakistan will be brick-lined under a crashed programme in the next four years.

This will conserve about 30 percent of water lost due to absence of watercourse lining. The project will cost Rs 66 billion.

In this regard, Rs 1 billion had already been released and another Rs 6 billion have been allocated in the next financial year. This project will create employment for about 100,000 skilled and unskilled workers in the rural areas of the country.

President Musharraf said the total agricultural credit, which reached Rs 65 billion this year will be increased to Rs 100 billion.

He underlined the importance of undertaking small and big dams in order to meet severe shortage of water. He said a number of projects have been initiated to develop water sources such as raising the crest of Mangla dam, construction of Gomal Zam Dam, Mirani Dam, Subak Zai Dam and Sapara Dam.

He said 2.8 million acres of land would be brought under cultivation once these projects will be completed.

The president said Kalabagh Dam will have to be constructed sooner or later at the face of looming danger of water shortage.;

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