Trouble is brewing between the Agricultural Development Bank (ADB-N) and Nepal's planners and policy makers over irrigation subsidies. While the Planning Commission has made up its mind to reintroduce subsidies on shallow tube wells (STWs) in an effort to boost agriculture in the tarai, Nepal's principal foreign lender in the agricultural sector feels granting subsidies without adequate resources will force a fiscal crisis.

The government scrapped subsidy on STWs in 1999/2000-a major precondition of the Second Agricultural Program Loan that it obtained from ADB-N. Contrary to expectations that supply would create its own demand, the installation of STWs shrank drastically after the subsidy revocation. STWs are a major thrust area of the 20-year Agricultural Perspective Plan for achieving rapid irrigation, but less than 20 percent of the target 8,800 shallow tube wells were installed last year. And it looks like this year's target of 4,300 STWs will also be hard to meet-only 20 wells have been installed as yet.

There is a growing reluctance among farmers to install unsubsidised STWs, because they cost Rs 50,000. A well with 80 percent subsidy costs Rs 10,000.