The Cabinet on Wednesday approved an additional outlay of Rs 34,856 crore towards the interest subvention scheme to help banks continue offering short-term farm loans of up to Rs 3 lakh at 7%, even in a rising interest rate scenario.
It has decided to restore an interest subvention of 1.5% on short-term agriculture loans, to be provided to financial institutions in FY23 and FY24. This support to banks for the interest subvention scheme was stopped in May 2020, as lenders were themselves able to provide such loans at 7%.
However, with the Reserve Bank of India (RBI) raising the benchmark lending rate thrice by 140 basis points since May (it has now exceeded the pre-pandemic level to hit 5.4%), it has become necessary to compensate banks, so that they can continue providing the short-term farm loans at 7%.
Of course, an additional subvention of 3% is given to farmers for timely repayment of loans, which effectively implies that these farmers get credit at a 4% interest rate.
Briefing reporters after the Cabinet meeting, information and broadcasting minister Anurag Singh Thakur also said the government has not let domestic fertiliser prices rise despite the increase in global rates.
Further, the minister said the fertiliser subsidy in the current fiscal year is likely to be more than Rs 2 trillion. In the Union Budget for 2022-23, fertiliser subsidy was estimated at Rs 1.05 trillion, against Rs 1.62 trillion in the last fiscal. However, with a spurt in global fertiliser prices in the wake of the Ukraine war, the government has decided to substantially raise its subsidy to soften the blow for farmers.
“Increase in interest subvention will ensure sustainability of credit flow in the agriculture sector, as well as ensure financial health and viability of the lending institutions, especially regional rural banks and cooperative banks, ensuring adequate agriculture credit in the rural economy,” the statement noted.
To enable credit facility to farmers, the government provides interest subvention to the financial institutions offering Kisan Credit Card (KCCs). The fund allocated under the interest subvention is also the second biggest scheme being implemented by the department of agriculture and farmers welfare, as per budget outlay and coverage of beneficiaries.
Recently, under the Aatmanirbhar Bharat campaign, over 31.3 million farmers were issued new KCCs, out of which 27.4 million KCC holders were engaged in crop cultivation, while 1.3 million card holders were engaged in dairying.