No interest subsidy on crop loan beyond Rs 3 lakh, says panel

New Delhi: A government panel, set up to suggest ways for better implementation of Rs 9 lakh crore farm credit scheme, has recommended that interest subvention should not be provided to farmers if short-term loan amount is higher than Rs 3 lakh. It also suggested that the interest subsidy should be given for the entire repayment period and not for just one year.

To ensure crop loan reaches the needy small and marginal farmers and best use of its interest subvention scheme, a nine-member panel was set up by the Agriculture Ministry under Chairmanship of V C Sarangi, former Nabard Chairman. Under the interest subvention scheme, farmers currently get short-term loan of up to Rs 3 lakh for a period of one year at an interest rate of 7 per cent. Those farmers repaying on time get loan at 4 per cent.

In this year's budget, the government has increased the agri-credit target to Rs 9 lakh crore and has allocated Rs 15,000 crore for interest subsidy in this fiscal. The panel, which recently submitted the report, has noted that agri-credit flow has improved after the introduction of interest subsidy scheme in 2006-07.

However, it has suggested various reforms for better targeting of this programme. Based on this report, the ministry is preparing a Cabinet note. Among key recommendations, the Sarangi Panel has said that interest subvention scheme should be continued with a cap on sanctioned short-term crop loan limit of Rs 3 lakh per farmer.

"The facility may not be extended where the crop loan sanctioned exceeds Rs 3 lakh," it added. At present, if the sanctioned loan amount is more than Rs 3 lakh then farmers get subsidy only up to Rs 3 lakh as permitted under the scheme.

The panel has suggested not to give interest subsidy at all to farmers who take loans of more than Rs 3 lakh, sources said. In order to bring down farm distress due to indebtedness, the panel has suggested extending the interest subsidy on crop loan up to the due date even if it is beyond 12 months to prevent farmers from taking loans from private lenders to repay the crop loans within one year.

There are some long-duration crops such as sugarcane and banana, therefore farmers face difficulties in repaying loans within a year, the panel argued. These recommendations have come at a time when farmers are facing distress and even taking extreme step like suicide because of fall in income and indebtedness in the wake of two consecutive droughts in several parts of the country.

Earlier this month, Agriculture Secretary Shobhana K Patnaik had spoken about gaps in implementation of the crop loan scheme and asked states to ensure to take steps to ensure agriculture credit reaches small and marginal farmers.

"In spite of so much money given for small and marginal farmers, credit is not flowing to this sector. As a result, this small and marginal farmers are knocking on the door of money lenders. As a result, we have seen the maximum number of suicides during the last year," Patnaik had said.

"That shows the institutional credit mechanism is not working the way it should be working. This is something that we all should ponder and take measures so that agri credit is made use of by the vulnerable section," he had said.

The government had set the farm credit target of Rs 8.5 lakh crore for the 2015-16 fiscal and is believed to have exceeded the target.