Debt waiver to be funded by taxes: Chidambaram
Debt waiver to be funded by taxes: Chidambaram
P Chidambaram drew up a pay back timetable spread over three years.

New Delhi: Revenues, non-tax revenues or market borrowings if necessary - the Finance Minister clearing the fog over the funding for his Rs 60,000 crore farm loan waiver made in his Budget speech.

Speaking in Parliament, Finance Minister P Chidambaram drew up a pay back timetable spread over three years.

Starting from July 2008, the Government will provide Rs 25,000 crore another Rs 15,000 crore for financial year 2009-10, Rs 12,000 crore for financial year 2010-11 and the remaining Rs 8,000 crore for the following financial year.

The cash will be used to compensate scheduled commercial banks, regional rural banks and cooperative credit institutions.

Chidambaram said, “I will front load the package in favour of regional rural banks and cooperative credit institutions.”

The Finance Minister can ride on the populist wave on the back of buoyant tax collections and he is also confident of holding back fiscal deficit to the 3.1 per cent levels that he promised Parliament.

But if the loan waiver scheme fails to bring the UPA back to power in the next elections, Chidambaram's payback timetable could turn into a fiscal nightmare for the new Government.

For now though, the FM has indicated that the scope of the loan waiver might be extended - a possible acknowledgement of Rahul Gandhi's suggestions made to him in Parliament on Thursday.

“I assure Parliament that I heard suggestions from MPs and most of these suggestions will be taken on board,” Chidambaram said.

It might all seem affordable as of now but the big question is with growth slowing down in India economists say revenue buoyancy may not hold.

In that event, economists are questioning the wisdom of spreading the debt waiver package over the next three years.

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