With India Meteorological Department (IMD) officially announcing a partial drought this year, the central government has said it could look at announcing another debt waiver package for affected farmers as it did in 2008-09.
The move will widen fiscal deficit, but the amount is likely to be lower than the Rs. 60,000 crore announced in 2008-09 by finance minister P Chidambaram.
Sources within North Block said the situation was being closely monitored. “Though there is fear about widening fiscal deficit, the government would look at a financial assistance package to aid the affected farmers in case the need arises, however, it is too early to indicate what steps would be taken," a senior finance ministry official told HT.
The official said the nature of aid would depend on the production of rabi crops.
Meanwhile, a Morgan Stanley research said the fiscal deficit for 2012-13 could touch 5.6% of GDP against the budget estimate of 5.1% primarily due to a weaker indirect tax collection growth and a high growth in government spending.
The finance ministry has set a Rs. 5,75,000 crore target of agriculture credit for banks in the current fiscal. Bankers said about 40% of the agriculture credit will be disbursed for kharif crops.
Indian banks are already under the scanner of global rating agencies and several of them, including the country's largest lender the State Bank of India, have been downgraded. The Reserve Bank of India allows deferment in repayment in case of a drought so that the loan accounts are not treated as bad assets after 90 days, providing a breather to banks.
“The fundamentals are strong, it is wrong to say that the government is not geared up to face the situation...,” Dipak Dasgupta, principal economic adviser to the finance ministry said.
“Fiscal deficit is cause for concern as it will be higher than what was projected in the budget as the government is already thinking of providing diesel subsidy to farmers,” Soumya Kanti Ghosh, director, Economics & Research, Ficci, said.