The Hindu : LIC's soft loan for Rural Development Ministry

Online edition of India's National Newspaper
Thursday, Sep 11, 2003

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Business

LIC's soft loan for Rural Development Ministry

By Our Staff Correspondent

NEW DELHI SEPT. 10. The Life Insurance Corporation of India (LIC) has approved a long-term loan of Rs. 10,000 crores to the Rural Development Ministry to meet the shortfall of funds for the ambitious Pradhan Mantri Gram Sadak Yojana (PMGSY).

The PMGSY envisages connecting through roads all habitations with a population of 500 people by the year 2007. The project, started in 2000, is expected to cost about Rs. 60,000 crores. However, the scheme has been facing rough weather lately due to shortage of funds.

The LIC soft loan is to be repaid in 25 years at an interest of 7 per cent, but the repayment will start only in the 11th year. A memorandum of understanding to this effect will be signed shortly between the LIC and the Rural Development Ministry.

At present, the main source of funds is 50 per cent diesel cess that amounts to Rs. 2,500 crores annually. Even if the diesel cess is increased, as the Centre is contemplating, the total will go up to Rs. 3,300 crores.

The World Bank has agreed to give a grant of $300 million or Rs. 1,500 crores this year and the Asian Development Bank (ADB) has sanctioned Rs. 2,000 crores for the purpose, repayable at a low interest rate of 1.5 per cent.

Despite all these efforts, the Ministry has managed to accumulate only Rs. 36,500 crores. An additional Rs. 10,000 crores from LIC will boost the implementation of the scheme in a big way but will still need to arrange for more funds to meet the approximate expenditure if the project is to be completed by the end of the Tenth Five Year Plan.

Madhya Pradesh and Chhattisgarh have managed to get additional funds from these two international funding agencies but this will be spent exclusively in these States.

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