Presenting his fifth budget and the last one before the general elections, Chidambaram announced waiver of Rs 50,000 crore worth of loans to small and marginal farmers and a settlement scheme for other farmers that would cost the exchequer another Rs 10,000 crore.

Chidambaram said that according to estimates, 3 crore marginal and small farmers would benefit from the government's amnesty.

Under the one-time settlement scheme that will benefit another 1 crore farmers, the government will give a rebate of 25 per cent on payment of outstanding loans.

The agricultural credit of scheduled banks is estimated at Rs 2,40,000 crore in the current fiscal and it would go up to Rs 2,80,000 crore in 2008-09.

Loan waiver aims at reducing farmers' distress: PM

Prime Minister Manmohan Singh said the agricultural loan waiver was a ‘very unorthodox response’ to raise the depressed ‘animal spirits’ of the farmers, the ‘biggest businessmen’ of the country.

Describing his government's fifth budget as ‘excellent and outstanding’, he said Finance Minister P Chidambaram had ‘lived upto his reputation’.

"Considering the amount of depression that prevails in the agriculture sector, this is the response mechanism (farm loan waiver) that is fully justified," Singh said.

He said the general feeling in the country was that agriculture is not doing well and farmers are not becoming active partners in the process of accelerated economic growth.

"There is a growing farming distress. We keep talking about the animal spirits of businessmen. But I think the farmers are the biggest businessmen of our country. They produce essential commodities required by us. If their animal spirits are depressed, it is not good for the country," the Prime Minister said.

He said his government has been ‘very generous’ in its response to address the problems faced by the farm sector. "It is very unorthodox response," Singh said.

The Finance Minister has kept the fiscal and revenue deficit under control and ensured that if ‘some adverse wind blows from outside the country’ it does not impinge on our growth process, he said.

The priorities of the UPA government would be to sustain the growth process and ensure that its rhythm is not interfered with, Singh said.