Union Cabinet approves interest subsidy for farmers, additional three per cent subsidy for timely loan payment

The Interest Subvention Scheme (ISS) for farmers for the year 2017-18 was approved at Wednesday's Union Cabinet meeting chaired by Prime Minister Narendra Modi.

This will help farmers availing short term crop loan up to Rs. 3 lakh payable within one year at only 4 per cent per annum. 

The Cental government has earmarked a sum of Rs. 20,339 crore for this purpose.

The interest subvention will be given to Public Sector Banks (PSBs), Private Sector Banks, Cooperative Banks and Regional Rural Banks (RRBs) on use of own funds and to NABARD for refinance to RRBs and Cooperative Banks.

The Interest Subvention Scheme will continue for one year and it will be implemented by NABARD and the RBI.

The objective of the scheme is to make available at ground level, agricultural credit for short term crop loans at an affordable rate to give a boost to agricultural productivity and production in the country.

The salient features of the scheme are as follows:

The Centre will provide interest subvention of five per cent per annum to all prompt payee farmers for short term crop loan upto one year for loan upto Rs. 3 lakhs borrowed by them during the year 2017-18.

Farmers will thus have to effectively pay only four per cent as interest. In case farmers do not repay the short term crop loan in time they would be eligible for interest subvention of two per cent as against five per cent.

The Central government will provide approximately Rs. 20,339 crore as interest subvention for 2017-18.

To give relief to small and marginal farmers who would have to borrow at nine per cent for the post harvest storage of their produce, the Central government has approved an interest subvention of two per cent i.e. an effective interest rate of seven per cent for loans upto six months.

To provide relief to farmers affected by natural calamities, the interest subvention of two per cent will be provided to banks for the first year on the restructured amount.

In case farmers do not repay the short term crop loan in time, they would be eligible for interest subvention of two per cent.

According to the release from the government,  credit is a critical input in achieving high productivity and overall production in the agricultural sector. 

The Cabinet’s  approval of a sum of Rs.20,339 crore to meet various obligations arising from interest subvention being provided to the farmers on short term crop loans, as also loans on post harvest storage meets an important input requirement of the farmers in the country. 

This institutional credit will help in de-linking the farmers from non-institutional sources of credit, where they are compelled to borrow at usurious rates of interest, the release said.

Since the crop insurance under Pradhan Mantri Fasal Bima Yojana (PMFBY) is linked to availing of crop loans, the farmers  stand to benefit from both farmer oriented initiatives of the Government, by accessing the crop loans, the release said.

A part of market reforms, the electronic National Agriculture Market (e-NAM) that was launched by the Union Government on April, 2016 aims at integrating the dispersed APMCs through an electronic platform  and enable price discovery in a competitive manner, to the advantage of the farmers. 

While the farmers are advised to undertake on-line trade, it is also important that they avail themselves of post-harvest loans by storing their produce in the accredited warehouses. 

The loans are available to Kisan Credit Card (KCC) holding small and marginal farmers at interest subvention of two per cent on such storages for a period   of upto six months. 

This will help the farmers to sell when they find the market is buoyant, and avoid distress sale.  It is, therefore, needful for the small and marginal farmers to keep their KCCs alive.

The Central government has launched several new initiatives that encompass activities from seed to marketing.  The credit from institutional sources will complement all such government initiatives like Soil Health Card, Input Management, Per Drop More Crop in Pradhan Mantri Krishi Sichai Yojana (PMKSY), PMFBY, e-NAM, etc.

Farmers in many Indian states have been demanding loan waivers from the government and in some places, the protests turned violent.

The Union Finance Minister said that if the states have to waive off farmers' loans, they will have to mobilise the funds from their own resources.