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An Interesting Story of Rural Infrastructure
Development Fund (RIDF): A Critical Review
Dr. Manmohan Singh, as the then Finance Minister, wrote in his Budget
Speech of 1995-96 thus:
“Inadequacy of public investment in agriculture is today a matter
of general concern. This is an area which is the responsibility of the
States, but many States have neglected investment in infrastructure
for agriculture. There are many rural infrastructure projects, which
have been started but are lying incomplete for want of resources. They
represent a major loss of potential income and employment to the rural
population” (p.7).
Thus, to encourage quicker completion of incomplete infrastructure projects,
the Government of India established the Rural Infrastructure Development
Fund (RIDF) from 1995. The Fund was to “provide loans to State Governments
and State owned Corporations for completing ongoing projects relating to
medium and minor irrigation, soil conservation, watershed management and
other forms of rural infrastructure (
Ibid
p.7). The loans were to be on a project-
specific basis with repayment and interest guaranteed by the concerned state
government As for the source of funding, it was said: “resources for the Fund
will come from commercial banks which will be required by Reserve Bank of
India (RBI) to contribute an amount equivalent to a bank’s shortfall in achieving
the priority sector target for agricultural lending, subject to a maximum of
1.5% of the bank’s net credit. This is expected to create a corpus of about
`
2,000 crore for completion of rural infrastructure projects” (
ibid
. P.7). Banks,
in other words, were given this RIDF escape root in fulfilling the agricultural
credit target under the priority sector only to the extent of 1.5% NBC so that
they do not escape social obligations beyond a point.
The state governments apparently began to show considerable
enthusiasm after the successful completion of the sanction process under
the first tranche of
`
2,000 crore; they started counting upon the RIDF as one
of the important sources for taking up a wide range of rural infrastructure
projects (NABRD 1992). Thus, what was started essentially as a scheme for
the completion incomplete irrigation projects, got widened over years to cover
a vast set of rural infrastructure projects. The successive Union Budgets
