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New Delhi: India on Friday expanded the scope and scale of an ambitious scheme to write off the debts of small farmers, saying it would now cost an additional Rs60 billion ($1.4 billion, Dh5.2 billion) and cover three million more poor cultivators.
The changes to the package come ahead of more state elections later this year and federal polls scheduled for next May, when the nearly two-thirds of Indians who live in villages will essentially determine which party forms the next government.
Finance Minister P. Chidambaram has denied in the past that the scheme was announced with elections in mind but analysts disagree and have said the plan would damage efforts to repair public finances.
"After an audit we expect the scheme to cost Rs660 billion. This size of a debt waiver has never been attempted before," Chidam-baram told reporters after the federal cabinet had approved the package.
Unaudited estimates put the project cost at up to Rs716.8 billion, he said. Both new forecasts are a marked rise on the Rs600 billion the scheme was pegged at when it was unveiled in the federal budget for 2008-09 in late February.
Beneficiaries
He said the scheme would now benefit 43 million farmers - up from the previous 40 million after guidelines on the size of holdings covered by the plan were revised.
All loans disbursed to farmers between March 31, 1997 and March 31, 2007 which were overdue on December 31, 2007 and remain unpaid until February 29, 2008 will be covered.
The scheme will be implemented by June 30, the minister said.
Indian farmers are often mired in debt they can never hope to pay off and tens of thousands have committed suicide in recent years. The millions who have been unable to secure bank loans and have borrowed from money lenders will not be covered.
Farmers constitute a major vote bank with nearly 65 per cent of the more than one-billion population drawing all or part of their income from agriculture.
Analysts say the impact of the massive debt write-off - along with a pay rise for government workers - would prove to be a setback to the Congress Party-led government's efforts to improve public finances.
"This year they won't bother about the deficit since it's an election year. Definitely the deficit will be out of hand due to the fiscal expansion and slowing growth," said N.R. Bhanumurthy, economist at Institute of Economic Growth. "Overall, the deficit will be much higher than the government estimate."
India has said it aims to limit its fiscal deficit to 2.5 per cent of gross domestic product (GDP) in the 2008-09 financial year, below the projected 3.1 per cent in 2007-08.
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