The proposal for offering interest subvention of 2 per cent on crop loans for farmers,who make timely repayment,will be considered by the Union Cabinet on Friday. The proposal,if accepted,will cost the exchequer a little over Rs 4,800 crore to operationalise the scheme. Farmers get short-term crop loans of up to Rs 3 lakh at an interest rate of 7 per cent. However,in order to incentivise those who make timely repayment,finance minister Pranab Mukherjee in his Budget speech this year had proposed to offer an interest rate subvention of 2 per cent,bringing the effective interest rate to just 5 per cent per annum. In the last budget,I provided an additional 1 per cent interest subvention as an incentive to those farmers who repay their short-term crop loan as per schedule. I propose to raise this subvention for timely repayment of crop loan from 1 per cent to 2 per cent for 2010-11, Mukherjee had said. In order to expand the reach of institutional credit to more farmers,the minister had also raised the target for agricultural credit flow. For financial year 2011,banks have to offer farm loans of Rs 3,75,000 crore as opposed to Rs 3,25,000 crore in financial year 2010. According to official statistics,in financial year 2010,cooperative and public sector banks had lent Rs 3,67,000 crore,exceeding their target by 13 per cent. Farm credit was extended to more than 4 crore farmers last year. Of the total farm credit offered,public sector banks had extended loans worth Rs 2,75,000 crore. Co-operative and regional rural banks,on the other hand,had lent Rs 58,000 crore and Rs 34,000 crore respectively in financial year 2009-10. Although,banks have consistently exceeded farm credit targets and short-term agricultural loans have shown robust growth in the last few years,the proposal assumes significance due to the lowering agricultural growth over the years. As banks expand their reach,more and more farmers can come into the fold of institutional credit and,therefore,ensure better productivity through utilisation of loans for actual agriculture purposes.
