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Return to Main Page of Budget 2004-2005

Indian Budget 2004-05
Full Text of P. Chidambaram, Minister of Finance, Budget Speech(July 8, 2004)


28. 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.

29. 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.


30. 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.

31. 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.

32. 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.

33. 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

34. 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.

35. 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

36. 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.

37. 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.

38. 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

39. 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

40. 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.


41. 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.

42. 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.

43. 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

44. 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.


45. 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

46. 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.

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