New Delhi, March 14: Finance minister P. Chidambaram today provided the details of how he proposed to fund the Rs 60,000-crore farm loan waiver announced in this year’s budget.

Taking the Opposition by surprise, the finance minister promised to release Rs 25,000 crore to banks in cash this calendar year itself.

“I shall pay in cash Rs 25,000 crore within this year to banks for the farm-loan-waiver package,” Chidambaram told the Lok Sabha in a reply to a debate on the budget.

“I have already provided Rs 10,000 crore and will provide another Rs 15,000 crore immediately after June 30, 2008,” he said.

According to Chidambaram, another tranche of Rs 15,000 crore will be paid from the 2009-10 budget, which he is entitled to present as a vote on account.

This amount will be paid within the first two months of the next financial year, possibly because the Congress-led government will get busy with the general elections by then.

“Together this means within 14 months we would have funded two-thirds of the loan waiver.”

However, his proposal to burden the next government with two tranches of cash compensation from the budgets of 2010-11 and 2011-12 did not go down well with either the parliamentarians or fiscal experts.

“It is highly unethical ... one cannot burden a government which is yet to be elected with doling out money that you have spent to garner votes,” Gurudas Dasgupta, CPI’s deputy leader in the Lok Sabha, told The Telegraph.

But Chidambaram was unrepentant. He said the Congress government under P. V. Narasimha Rao had to fund the farm loan waiver announced by the previous VP Singh government which the BJP had supported from the outside.

Mounting a spirited defence of the plan, Chidambaram said the scheme would be financed only from revenues.

The finance minister said the money would come from taxes and, if needed, other non-tax sources such as dividends, interest, and royalties.

“We should be able to finance the package in each year out of the buoyancy in tax revenues alone,” he said.

“If that is not sufficient, we can tap non-tax revenues and non-debt capital receipts in that order. Finally, if that is not sufficient, there will be enough headroom for the government to borrow. This will, however, be the last resort,” the minister added.

Chidambaram argued the package would be fully financed through cash in 36 months — between July 2008 and June 2011 — and the burden in any single year would not exceed 0.25 per cent of the gross domestic product.

However, D. Joshi, chief economist of Crisil, said, “It will show up as a cost somewhere. It will impact the fiscal deficit, the degree of impact will depend on the final packaging.”

He said provisional estimates of the Reserve Bank of India and the National Bank for Agriculture and Rural Development indicated that “relief to be offered will be around Rs 60,314 crore comprising Rs 50,524 crore of debt waiver to small and marginal farmers and Rs 9,790 crore as relief to other farmers as a one-time settlement at 25 per cent of their overdues.”

“Estimates also indicate that about three crore small and marginal farmers and one crore other farmers will benefit if they have overdues as on December 31, 2007.”

Debt swap

According to Chidambaram, there is a scheme that allowed farmers, who had taken loans from money lenders, to swap their high-cost borrowings for cheaper credit from public sector banks. However, the scheme is not popular.

The finance minister said he would try and work out a better package, which would help farmers to retire their loans from money lenders.