Let’s go back to villages
NABARD chief general manager and RIDF head BS Shekhawat tells Syed Ameen Kader that enhanced public investment for rural infrastructure could result in long-term economic prosperity for the country
Tell us about the Rural Infrastructure Development Fund (RIDF) and its genesis?
In the mid-nineties, it was realised that banks’ agriculture and rural credit was facing a roadblock mainly due to paucity of rural infrastructure. In the absence of adequate public investment in rural infrastructure, bank credit almost plateaued. Productivity of credit also suffered if commensurate infrastructure were not in place.
Meanwhile, state governments were facing acute resource crunch. Their implementing departments had lesser access to projectised finance as they were mostly tuned to budgetary allocations, which typically worked on yearly basis.
RIDF was therefore conceived to fill in this gap. In 1995-96, Government of India and RBI created the fund with National Bank for Agriculture and Rural Development (NABARD). RIDF sources funds from commercial banks – from out of their unfulfilled commitments in agriculture and priority sector lending – and provides loans to state governments for projectised finance for rural infrastructure.
What role does NABARD envisage in development of rural infrastructure when many are talking about rural economy and infrastructure playing a major role in reviving the Indian economy?
Enhanced public investment for rural infrastructure in irrigation, agriculture, rural connectivity, social sectors, etc would eventually result in long-term prosperity. In fact, creation of infrastructure itself generates rural jobs, incomes, more employment, increased demand for goods and services and thus substantially contributes to overall socio-economic development of rural economy.
And, not unintended, the improved rural infrastructure helps the borrowers in optimum utilisation of bank loans and the banks in expansion of rural credit.
How does NABARD source its funds for rural infra? How are you currently placed on the liquidity front given the ongoing recessionary trends?
Funds are contributed by scheduled commercial banks (public and private sector). The bank-wise funds to be contributed to RIDF are worked out by RBI, on year-to-year basis. There has been no resource constraint on this count.
How much has been allocated so far under RIDF scheme? What is this year’s allocation?
So far, NABARD has made available to state governments Rs88,000 crore under RIDF (I to XIV) and Rs12,000 crore under Bharat Nirman (rural roads component) to National Rural Roads Development Agency (NRRDA), under Ministry of Rural Development (MoRD), thus taking the total allocations to Rs1,00,000 crore. We have had 14 tranches so far, in 14 years, and fully utilised Rs1,00,000 crore. Broadly, there has been 92 to 95% utilisation.
What is the next year’s budget allocation?
The interim union budget for the year 2009-10 has allocated Rs14,000 crore for RIDF XV and Rs4,000 crore for utilisation by NRRDA under Bharat Nirman.
How do you decide on the funds to be allocated to different states?
Less developed states get our preference. There is an objective matrix of assessment developed by NABARD based on the criteria like a state’s size of rural population, the geographical area, its rural infrastructure index, the banks’ rural credit-deposit (CD) ratio in the state and past sanction and utilisation efficiency of RIDF.
What are the fund utilisation patterns for RIDF?
Major share has been utilised for projects in irrigation, agriculture and allied activities (45%), rural connectivity such as rural roads and bridges (43%) and social sector (12%).
What are the activities that are eligible for RIDF?
There are 31 activities such as rural roads and bridges, irrigation, small hydel projects, drainage and infrastructure facilities for schools and hospitals which are being currently financed from RIDF.
Is NABARD looking for private participation for driving rural infra development?
The planning commission had indicated that private sector might play a significant role in investments for infrastructure. Many state governments are facing delivery gaps, besides funding gaps. There are also states that need a wider choice of financial products like annuity models, credit enhancement models as also PPP delivery and maintenance models.
We are working on these demand-based needs so that we might be able to broaden and deepen our support to rural infrastructure delivery in different states in the years to come.
Why is RIDF so sought after by state govts?
NABARD lends at 6.5% interest rates to the state governments. But the USP of RIDF is its project approach to rural infrastructure. A lot of effort goes into preparing and appraising the projects. The funds do not lapse at year-end. The projects are closely monitored and mid-course corrections carried out. Evaluation and external assessment are also integral and important components of RIDF.
What are the key constraints faced in speedy implementation of projects?
Some projects are affected by factors like land acquisition, procedural demands, design change or changes in the costs or environmental clearance, etc. Most projects were completed in time within the budget.