The "New Deal"
for rural India
Agriculture and The Rural Economy
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 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.
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
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
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
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.
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 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
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
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)
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
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
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
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
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
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
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
President Musharraf said the total agricultural credit, which
reached Rs 65 billion this year will be increased to Rs 100
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