With close to ₹80,000 crore required to complete irrigation projects that have already been conceived, the National Bank for Agriculture and Rural Development (Nabard) wants the government to consider allowing it to raise resources via tax-free bonds so that the projects can be taken to their logical conclusion.
Given that irrigation is a priority area for the Centre, completed irrigation projects will benefit farmers and the economy, according to Harsh Kumar Bhanwala, Chairman, Nabard.
He emphasised that under the aegis of the Rural Infrastructure Development Fund (RIDF), Nabard has created an irrigation potential of 26.7 million hectares in the last 21 years. The fund has also helped establish rural connectivity — 4.16 lakh km of rural roads and 1,000 km of bridges.
RIDF deposits are drawn from banks facing shortfall in meeting priority sector lending — agriculture, micro, small and medium enterprises, housing, education and weaker sections — targets. The Fund was instituted in Nabard through an announcement in the Union Budget 1995-96 with the sole objective of giving low-cost funding support to state governments and state-owned corporations for quick completion of ongoing projects relating to medium and minor irrigation, soil conservation, watershed management and other forms of rural infrastructure.
Bhanwala said, “Since RIDF comes out of priority sector shortfall (of commercial banks), this source is getting limited. So, we have to find alternative sources of raising cheap capital. Nabard, or any other entity which the government of India conceives, should be allowed to raise resources at reasonable rates via tax-free bonds or via some alternate mechanism.”
Over the last few years, banks have stepped up efforts to meet PSL targets in order to keep their outgo towards RIDF as low as possible. On RIDF deposits, banks earn low-interest rates, ranging from 3.75 per cent to 5.75 per cent. The higher the shortfall in meeting the overall PSL target, the lower the interest rate they earn on deposits parked in RIDF.
Bhanwala observed that in addition to the allocations under RIDF, for completion of irrigation projects there is a need to create a mechanism for funds to flow in as capital borrowings.
Completion rate Pointing out that the current year is the 21st year of RIDF assistance, Bhanwala said, cumulatively, out of ₹2,51,865 crore sanctioned for 5,77,210 projects since inception of the Fund, disbursement stood at ₹1.78 lakh crore as on December-end 2015. The completion rate of the projects is 93 per cent.
“The outstanding balance under RIDF is around ₹89,000 crore. If this is taken into account, then Nabard is one of the largest infrastructure funding institutions in the country,” he said.