Looking to promote low-cost housing, the government on Thursday approved a 1 per cent interest subsidy for homes costing no more than Rs 20 lakh. This, in effect, would mean that home loan seekers could save up to Rs 10,000 on their monthly repayments for a year. The subsidy will be made available for loans of up to Rs 10 lakh, information and broadcasting minister Ambika Soni said after a meeting of the Cabinet, which cleared the finance ministry’s proposal.

“It is expected that cut in interest rates should reduce EMIs of borrowers and create additional demand for housing, particularly in the low-cost category,” she said, adding that the scheme would cost the exchequer Rs 1,000 crore and benefit about 10 lakh borrowers.

The minister said the move “in turn should stimulate demand in the construction industry as well as industries such as steel and cement having employment and income multiplier effect”.

The government on Thursday also slashed the interest subsidy given to farmers on crop loans by one percentage point to 2 per cent for this fiscal. The move, the minister said, is expected to bring down the burden on the exchequer by Rs 311 crore.

According to the Cabinet, the government will pay 2 per cent interest subsidy to banks, against 3 per cent in the last fiscal, for granting short-term crop loan to farmers at a concessional rate of 7 per cent, Soni said.