This, along with allocations to the existing funds, means that the Narendra Modi government has since 2015-16 created or promised to create institutional financial arrangements worth over Rs 1,730 billion, outside of budgetary allocations.
Critics, however, say that creating such institutional financial arrangements means deferring the expenditure and, many a time, this might delay the availability of funds, unless proper rules are framed. But others feel this is a better route to ensure development without impacting fiscal discipline, as the government could defer reimbursements to an institution over a longer period.
The funds created so far usually lend to state governments or governments’ own vehicles that further lend directly to projects or institutions.
To date, new long-term dedicated funds amounting to almost Rs 728.81 billion have been created in financial institutions since 2015-16 – much of that in NABARD. Another Rs 1 trillion has been spent on enhancing the corpus of existing funds.
Taken together, the value of new funds is around 30 per cent more than the total budgetary allocation for the entire agriculture ministry, including animal husbandry and research, estimated at Rs 560 billion in Budget Estimates for 2018-19.
For many such funds, the mechanism involves financial institutions borrowing money for financing these funds from the market at a fixed rate of interest and lending to states, government vehicles and institutions at a subsidised rate with the government providing interest subvention.
Lending to a central government vehicle also ensures that the repayment is made on time.
Of the Rs 400 billion long-term irrigation fund created in NABARD in Budget 2017-18, around Rs 150 billion has already been disbursed, while sanctions for almost Rs 500 billion have also been received.
For the second fund of Rs 50 billion for micro irrigation, Budget 2018-19 documents show that a draft Cabinet note is being prepared to operationalise the fund.
For a third fund, to develop and modernise dairy infrastructure in the country for boosting milk processing and generating additional employment, called the Dairy Processing and Infrastructure Development Fund (DIDF) with a total allocation almost Rs 120 billion and created in 2017-18, the Cabinet approval has been received and four-five projects will be funded by March 2018.
This fund is routed through the National Dairy Development Board (NDDB), a government vehicle.
Usually, it takes three-four months for the operational guidelines of a fund to be decided. But, if it takes longer, as has been the case with DIDF, the wait for allocations get that much longer.
“This is not a bad model for development, as all the allocations cannot be done in one Budget and, since the repayment obligation is staggered, the pressure on the fisc is spread over a longer period of time,” NABARD Chairman Harsh Kumar Bhanwala told Business Standard.
Former agriculture secretary Shiraj Hussain said the creation of a dedicated fund for institutional financing mechanism is a good idea, as projects get sanctioned fast through this. But much depends on states and the capacity of bodies and institutions to absorb the funds, besides the government’s swiftness in framing rules for their operations.