Rural infrastructure fund likely to get fresh look in Budget

Speaking to The Indian Express, a member of the PM’s panel pointed out, “The RIDF was created as banks were not meeting their agricultural credit target — with the idea that the shortfall in banks’ lending to agriculture would be transferred to RIDF. In reality, banks are only contributing a small part of their agricultural credit default to RIDF though the impression is that RIDF gets all the defaulted funds. The rest is probably getting diverted.”

The amounts involved aren’t small by any yardstick. Consider the difference between the total amount of agricultural credit default by banks and the amount allocated by them to RIDF in the years 2003-04, 2004-05 and 2005-06: Rs 16,586 crore, Rs 23,759 crore and Rs 22,628 crore, respectively. That adds up to a whopping Rs 63,000 crore.

“This means there is enough money in the system. We had suggested that the entire default amount should be transferred to the RIDF or be invested in agriculture either directly by NABARD or through the issue of rural development bonds by the government,” the panel member said. An official said the government was working closely with NABARD to correct the anomaly and significant changes might be announced in the Budget.

But this is not the only area of concern that the prime minister’s panel on indebtedness had dwelled on. Even as the RIDF corpus has grown from Rs 2,000 crore in its first tranche (1995-96) to Rs 12,000 crore this year, there is a ‘widening gap’ in recent years between fund sanctions for projects and actual disbursements. While disbursals as a percentage of sanctions have been steadily declining since RIDF’s inception, the rate has sharply dipped in UPA’s tenure — from 60.5 per cent in 2003-04 to 35.8 per cent in 2004-05 and a mere 9.5 per cent in 2005-06. This is “a matter of concern”, the panel had stressed, especially since annual RIDF sanctions for projects in the same period have been the highest ever.

The panel had also highlighted “vast regional variations” in the use of RIDF funds since its inception. By March 2006, south India accounted for 30 per cent of all sanctions and disbursements. The central, north-eastern and eastern parts of India, with 58 per cent of farm households, together accounted for only 35 per cent of the total funds disbursed.

“States like Andhra Pradesh and Maharashtra with a good shelf of projects get maximum funds, but the really needy states with no projects don’t. The RIDF’s state-wise disbursal is not proportionate to the banks’ farm credit defaults in states. We had identified about 100 very poor districts that need priority attention and allocations can be made there. For backward states, there should be a team in NABARD to pro-actively design projects rather than wait for the state,” the panel member pointed out.