Finance Minister Jaswant Singh on Tuesday withdrew the increase in the price of fertilisers.

"I have taken back the increase in the  rate of fertilisers (to the tune of Rs 700 crore)," Singh said replying to the debate on the general budget for 2003-04.

Singh announced reduction of one per cent interest rate on fresh loans given by the central government to the states.

He did not announce any rollback on diesel price hike.

Singh said agriculture credit would be provided at PLR plus or minus 2 per cent from April 1 this year.

This will make agriculture credit 2 to 3 per cent cheaper.

The new PLR rate will be announced by Reserve Bank of India soon.

Singh said interest rates on loans and advances to government employees for housing, computer and conveyance will be reduced by one per cent.

He prefaced the withdrawal of fertiliser price hike saying the issue of mounting subsidy was a matter of grave concern and it had to be addressed at some point of time.

"But if you don't want any increase then so be it," he said, pointing out that majority of the fertiliser subsidy went to help inefficient units and did not go to farmers.

Singh said the price of naphtha, a major feedstock for urea fertiliser, has gone up by 60 per cent in the last six months leading to a situation in which naphtha-based units were being subsidised to the tune of Rs 16,000 per tonne.

Highlighting the issue of mounting subsidy, he said: “We cannot have a subsidy bill of Rs 50,000 crore (Rs 500 billion), of which Rs 28,000 crore (Rs 280 billion) is on account of food subsidy, Rs 12,000-13,000 crore (Rs 120-130 billion) on fertilisers and Rs 9,000-10,000 crore (Rs 90-100 billion) on petroleum products."

Regarding fertiliser and petroleum subsidy, he admitted the government was not in control as they were mainly due to increase in international crude oil prices which have now touched $35 a barrel.

However, he said the government was committed to providing fertiliser at affordable prices to poor farmers.

"This will be the cornerstone of the fertiliser pricing policy."

He said the group of ministers on fertiliser was going into the entire gamut of pricing of fertilisers and it would soon come out with its recommendations.

Singh disputed the claims of members that the fertilisers are used by poor farmers saying fertiliser is used only in an irrigated land and, hence, did not affect drought-hit farmers.

"What do you to with the urea if the ground is parched," he said.