Union Finance Minister P Chidambaram has made announcement that the ministry will provide Rs 60,000 crores in cash to banks over next three years in order to clear up the burden of farm loan waiver completely.

Starting July, the lenders will be handed Rs 25,000 crore within next 12 months. The remaining funds will be paid in coming years - Rs 15,000 crore in 2009-10, Rs 12,000 crore in 2010-11 and Rs 8,000 crore in 2011-12. The process of identifying beneficiary farmers would be completed by June 30, 2008.

In terms of the lending institutions, around 55% of the package would be provided to borrowers from cooperative institutions, 35% to borrowers from listed commercial banks and 10% to borrowers from RRBs.

Mr. Chidambaram said that the government would raise funds by tapping the buoyancy in tax revenue, non-tax revenues i.e dividends, interests, royalties and fees; non-debt capital receipts i.e recovery of loans and advances, premium on sale of sequestered assets and initial listing of public sector enterprises, and finally additional borrowing, if needed.

“We should be able to finance the package through the regular budget in each year out of the buoyancy in tax revenues alone. If that is not sufficient, we can tap non-tax revenues and non-debt capital receipts in that order. Finally, if even that is not sufficient, there will be enough headroom for the Government to borrow. This, however, will be the last resort,” he said.

The minister commented that the government had already found Rs 10,000 crore in the current fiscal for the debt-relief fund.

He also said, “The government would make additional allocations if necessary.”

The FM said that the buoyancy in tax receipts and the government’s financial prudence have given it the “fiscal space” to declare the Rs 60,000 crore loan-waiver package for the debt-laden farmer. He said direct tax collections that had far exceeded Budget targets during the last four years and indirect tax collections, which also surpassed Budget targets, offered the administration enough headroom.

In addition, the diminution in fiscal deficit would be 2.5% of the GDP in place of 3% as dictated in the FRBM Act.