Writes to PM expressing shock over RBI decision

Expressing shock over the Reserve Bank of India's recent revision of interest rate for Rural Infrastructure Development Fund (RIDF) loans to eight per cent, Chief Minister Jayalalithaa on Friday urged Prime Minister Manmohan Singh to restore the rate at 6.5 per cent.

Pointing out that the new rate had been made applicable for drawals after April 1 even for projects sanctioned in the previous financial years, Ms. Jayalalithaa, in a letter to Dr Singh, stated: “You will agree with me that once a project is sanctioned, it is not fair to alter the conditions during the project period. This unilateral action by the Reserve Bank of India has totally taken us by surprise and has upset the financial projections. As a result, Tamil Nadu will have an additional interest burden of Rs.229 crore on the projects already sanctioned and under implementation.”

She said that if at all the interest rate had to be enhanced, it should have been kept around 7 per cent and made applicable only for loans for projects sanctioned during 2012-2013.

Drawing Dr. Singh's attention to the fact that Tamil Nadu is one of the front-running States both in terms of sanction of projects as well as drawal of funds from the RIDF, the Chief Minister said that the State had a bank sanction of Rs.2,184 crore, for which funds would be drawn in 2012-2013 and subsequent years.

The State government had proposed such massive investment, using RIDF loans, “only on the assumption that the lending rates will remain reasonable”.

The State governments had been using the RIDF of the National Bank for Agriculture and Rural Development (NABARD) as a cost-effective financing option for taking up various essential infrastructure activities in rural areas.

Ms. Jayalalithaa argued that the revised rate would make RIDF loans unviable and the States would be forced to cut down on investment in rural infrastructure, which was vital for inclusive development.