PM Modi Provides $42.82 billion & Loan Forgiveness Program to Aid Farmers Hit by Low Crop Price

Prime Minister Narendra Modi is out with a big plan to help farmers suffering by low crop prices.

PM has considered three options for a relief package to help farmers suffering of low crop prices at a cost of as much as 3 trillion rupees ($42.82 billion), according to government sources.

The possibilities are a direct payment to all landowning farmers, compensation for those who sold produce below government prices and a loan forgiveness program.

PM Modi is desperate to claw back support among India's 263 million farmers and their many millions of dependents after BJP lost power earlier this month to the Congress in three big heartland states.

Now, the government is keen to find a way to get money to farmers as quickly and simply as possible so that they can feel the benefits before the election. That could come at a major cost to its budget, which is already strained because of lower-than-expected tax revenues. It is likely to undermine its fiscal deficit target for the year ending in March.

The quickest option, and currently the most favored inside the government, is to directly pay landowning farmers 1,700-2,000 rupees per acre, said two of the sources, including one at the farm ministry.

The finance ministry also estimates a scheme, which means farmers would get the money before next sowing season, could cost up to 1 trillion rupees.

The second option would be to compensate farmers for the difference they received by selling their produce in the market compared with the government price that is set for grains and some other products, one of the finance ministry officials said. That would be cheaper, costing about 500 billion rupees, the official added.

That option has some major drawbacks, though, as government support schemes have lost credibility because they don't cover all farm produce and claiming from the government has often proven difficult. Middlemen have also taken advantage of such schemes by persuading the farmer to give them part of any subsidy or compensation.

The most expensive option is at a cost of as much as 3 trillion rupees and the least favored inside the government, would involve writing off farm loans by up to 100,000 rupees per person. That is a policy that is being pushed hard by the opposition Congress party.

According to a source at Farm Ministry," The government is considering three options - writing off some farm loans, introducing a price differential plan and direct transfer of cash to farmers."