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Return to Main Page of Budget 2005-2006

Indian Budget 2005-06
Full Text of P. Chidambaram, Minister of Finance, Budget Speech(Feb 28, 2005)


39. With about two thirds of the population dependent on agriculture, and the sector producing only 21 per cent of GDP in 2003-04, it is imperative that we address the problems of our farmers with a sense of urgency. Agriculture being a State subject, the bulk of public investment in agriculture takes place at the State level, and the Central Government’s support to States acts as a catalyst.

Roadmap for Agricultural Diversification

40. Indian agriculture has indeed diversified from food grains to other crops, but more needs to be done. The Ministry of Agriculture will prepare a roadmap for agricultural diversification. The road map will focus on fruits, vegetables, flowers, dairy, poultry, fisheries, pulses and oilseeds.

National Horticulture Mission

41. The National Horticulture Mission, announced in the last Budget, will be launched on April 1, 2005. I propose to allocate Rs.630 crore in 2005-06 for the Mission. The Mission will ensure an end-to-end approach having backward and forward linkages covering research, production, post-harvest management, processing and marketing, under one umbrella, in an integrated manner. As the Mission gathers pace, more funds will be provided.

Plantation Sector

42. I am aware of the difficulties that the plantation sector has faced for some years now. While the prices of commodities such as tea and coffee have shown some improvement, the sector still faces difficulties. The Price Stabilization Fund has not proved very effective or popular. Therefore, Government has set up an expert committee to suggest improvements to the Fund and its operation. In the case of tea, our comparative advantage has been eroded largely because of the declining productivity of tea. Government will examine ways and means of introducing a programme for massive replantation and rejuvenation.

Agricultural Marketing Infrastructure

43. Government proposes to introduce a new scheme called Development/Strengthening of Agricultural Marketing Infrastructure, Grading and Standardization. The goal of this scheme is to induce large investments from the private and cooperative sectors for setting up agricultural markets, marketing infrastructure and support services such as grading, standardization and quality certification. Assistance will be available in the form of credit-linked, back-ended subsidy. It is proposed to implement the scheme through the National Bank for Agriculture and Rural Development (NABARD) and the National Cooperative Development Corporation (NCDC) in those States which amend their Agricultural Produce Marketing Committee (APMC) Acts. I propose to allocate Rs.72 crore for the new scheme.

Water Resources, Flood Management and Erosion Control

44. The National Project, announced by me last July, for the repair, renovation and restoration of water bodies will be launched in the month of March 2005. The pilot project is planned for 16 districts in 9 States and will cover nearly 700 water bodies, and 20,000 hectares of additional land will come under irrigation. The allocation for the pilot project has been increased to Rs.100 crore in 2005-06.

45. Uttar Pradesh, especially its eastern part, Bihar, West Bengal, Orissa, Assam and the North Eastern States are regularly affected by floods in the Ganga basin and in the Brahmaputra and Barak valleys. A Task Force constituted to recommend measures for flood management and erosion control has submitted its report. The Plan outlay in 2005-06 to implement the report will be Rs.180 crore. Besides, a sum of Rs.52 crore has been allocated for the Farakka Barrage Project.

46. The Accelerated Irrigation Benefit Programme (AIBP) has been reviewed and the focus turned to early completion of truly last mile projects. In BE 2004-05, I had provided a sum of Rs.2,800 crore. Having regard to the improvement in the pace of implementation, the outlay has been increased to Rs.4,800 crore for the next year.

Micro Irrigation

47. Water-use efficiency in Indian agriculture is one of the lowest in the world. Government will promote micro-irrigation technology, comprising drip and sprinkler irrigation, on a large scale. About 1.2 million hectares have been covered under micro-irrigation so far, and the plan is to increase the coverage to 3 million hectares by the end of the Tenth Plan and to 14 million hectares by the end of the Eleventh Plan. Accordingly, I have provided Rs.400 crore for promoting micro-irrigation in 2005-06.

Rural Credit and Indebtedness

48. Government intends to continue with its effort to turn the focus of commercial banks, regional rural banks (RRBs) and cooperative banks towards providing credit, especially production credit, to rural households and farm households. Particularly in agricultural credit, innovations are possible. I propose to request the Reserve Bank of India (RBI) to examine the issue of allowing banks to adopt the agency model, by using the infrastructure of civil society organizations, rural kiosks and village knowledge centres, to provide credit support to rural and farm sectors.

49. In June 2004, I had announced my intention to double the flow of agricultural credit in three years. I had also announced an indicative target of Rs.105,000 crore. Notwithstanding a below par performance by co-operative banks, together, all three arms will disburse Rs.108,500 crore in the current year. Continuing on the same path, I propose to ask commercial banks, RRBs and cooperative banks to increase the flow of credit by another 30 per cent in 2005-06. Further, the public sector banks would be asked to increase the number of borrowers by another 50 lakh.

50. Cooperative banks in India, with few exceptions, are in a shambles. Six State Central Cooperative Banks and 140 District Central Cooperative Banks do not comply with Section 11 of the Banking Regulation Act, 1949. They also have difficulty in accessing refinance for agricultural credit. Alarmed by the gravity of the situation, I had appointed a Task Force to examine the reforms required in the cooperative banking system. The Task Force has submitted its report. The recommendations include:

• Special financial assistance to wipe out accumulated losses and strengthen the capital base of co-operative credit institutions;

• Institutional restructuring to ensure democratic institutions; and

• Changes in the legal framework to empower RBI to enforce prudent financial management.

I propose to accept the report in principle. I also propose to call State Governments for consultation and begin the process of implementing the recommendations in the States that show willingness to accept the recommendations.

Farm Insurance

51. The National Agricultural Insurance Scheme (NAIS) has been in operation since rabi 1999-2000. I have received the recommendations made by the joint group constituted by the Ministry of Agriculture to suggest an improved farmer-friendly crop insurance scheme. Further consultation with all the stakeholders would be required. I, therefore, propose to continue the NAIS in its present form for kharif and rabi 2005-06.

Micro Finance

52. The programme of linking Self Help Groups (SHGs) with the banking system has emerged as the major micro-finance programme in the country. 560 banks including 48 commercial banks, 196 RRBs and 316 cooperative banks are now actively involved in the programme. I propose to enhance the target for credit-linking in the next fiscal from 2 lakh SHGs to 2.5 lakh SHGs.

53. At present, micro finance institutions (MFIs) obtain finance from banks according to guidelines issued by RBI. MFIs seek to provide small scale credit and other financial services to low income households and small informal businesses. Government intends to promote MFIs in a big way. The way forward, I believe, is to identify MFIs, classify and rate such institutions, and empower them to intermediate between the lending banks and the beneficiaries. Commercial banks may appoint MFIs as “banking correspondents” to provide transaction services on their behalf. Since MFIs require infusion of new capital, I propose to re-designate the existing Rs.100 crore Micro Finance Development Fund as the “Micro Finance Development and Equity Fund”, and increase the corpus to Rs.200 crore. The fund will be managed by a Board consisting of representatives of NABARD, commercial banks and professionals with domain knowledge. The Board will be asked to suggest suitable legislation, and I expect to introduce a draft Bill in the next fiscal year.

54. I propose to request RBI to open a window to enable qualified NGOs engaged in micro-finance activities to use the External Commercial Borrowing (ECB) window. Detailed guidelines containing necessary safeguards will be issued by RBI.

Micro Insurance

55. The benefits of opening the insurance sector are now visible by way of vast improvement in insurance penetration and insurance density, and the availability of a wide variety of products. Government would like to see these benefits percolate to rural India and to the vulnerable sections of the population. Micro insurance is a distinct product. Its design and delivery are specialized functions. The Insurance Regulatory Development Authority (IRDA) has published draft Regulations for micro insurance. NGOs, SHGs, cooperatives and MFIs will be invited to become micro insurance agents. Government will extend full support to the effort of IRDA to promote micro insurance.

A Knowledge Centre in Every Village

56. The National Commission on Farmers has recommended the establishment of Rural Knowledge Centres all over the country using modern information and communication technology (ICT). Mission 2007 is a national initiative launched by an alliance comprising nearly 80 organizations including civil society organizations. Their goal is to set up a Knowledge Centre in every village by the 60th anniversary of Independence Day. Government supports the goal, and I am glad to announce that Government has decided to join the alliance and route its support through NABARD. I propose to allow NABARD to provide Rs.100 crore out of RIDF.

Agricultural Research

57. Agricultural Research has a vital role to play in the strategy for reviving and encouraging diversification. Our agricultural universities and research institutions have done good work in the past and now need to be strengthened and modernized. A Task Force headed by Dr. M S Swaminathan has recommended the creation of a National Fund for Strategic Agricultural Research. I am happy to announce an initial provision of Rs.50 crore for operationalizing this Fund.

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