Interest subsidy for farmers to be retained, may cover more sectors

Written by Arun S | New Delhi | Updated: Feb 27 2013, 08:02am hrs
The government is likely to continue with the interest subsidy schemes for sectors such as agriculture, low-cost housing and womens self-help groups (SHG) in the forthcoming Budget.

Sources also told FE that some segments in the exports sector, which is facing a slowdown due to the fall in demand in major overseas markets, will also be included in the interest-subvention scheme to help them improve their price competitiveness, while educational loans are also likely to get a boost with an enhanced allotment for the Credit Guarantee Fund so that deserving students do not face difficulty in accessing credit.

These interest-subvention schemes are benefiting priority sectors, and particularly the needy, and therefore they are going to be extended by another year and expanded where it is needed, an official said.

With a huge shortage of accommodation in the country, especially for low-cost housing in urban areas and towns, the government is expected to extend for another year the 1% interest subvention on housing loan up to R15 lakh where the cost of the house is below R25 lakh.

The housing shortage in urban areas is now 18.78 million units even as the country currently has almost 100 million people living in slums, according to a recent report by the housing finance regulator National Housing Bank. The report pegged the total shortage of rural housing at 43.67 million.

With an eye on the general elections due next year, the Budget will also have measures to help farmers get easy access to affordable credit.

The government is expected to extend for another year the interest subsidy scheme for providing short-term crop loans to farmers at 7% interest per annum.

Besides, those farmers who are prompt in their repayment of loans will continue to get an extra interest subsidy of 3%. In a bid to motivate farmers to store their produce in warehouses, they can also avail the same interest subsidy on post-harvest loans for up to six months against negotiable warehouse receipt.

Though most export sectors have already been given the benefit of a 2% interest subsidy till March 31, 2014, the Budget is also likely to extend this advantage to many crucial sub-sectors, including two- and four-wheelers, high-end engineering products and forging and casting products in the engineering goods export sector, as well as textiles other than garments, in addition to leading export sectors such as leather, and gems and jewellery which are also labour-intensive.

With the contraction in demand in markets abroad, the key factor is pricing of products. We had requested the government to help make many of the sectors that were left out of the interest-subvention scheme, more competitive, said Federation of Indian Export Organisations director-general and CEO Ajay Sahai.

Besides, as a follow-up to the enhancement of the corpus for the development fund for womens SHGs last year (R300 crore from the earlier R200 crore) and to further empower women SHGs to access bank credit, especially in rural areas and places affected by naxalism, the government may extend by another year the interest subvention for such SHGs to avail loans up to R3 lakh at 7% per annum. Also, those women SHGs repaying loans in time may be allowed to avail an additional 3% interest subvention taking the effective rate to 4%.