Govt cuts farm loan interest subsidy to 2%
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Last Updated: Friday, September 11, 2009, 00:12
New Delhi: The government on Thursday slashed the interest subsidy given to farmers on crop loans by one percentage point to two per cent for this fiscal, a move that is expected to bring down burden on the Central exchequer by Rs 311 crore.

According to the decision, taken by the Union Cabinet today, the government will pay two per cent interest subsidy to banks, against three per cent in the last fiscal, for granting short-term crop loan to farmers at a concessional rate of 7 per cent, Information and Broadcasting Minister Ambika Soni told reporters here.

The subvention is available for crop loans up to Rs three lakh for one year and will be given to PSU banks, regional rural banks (RRBs) and cooperative credit institutions (CCIs) on their lending as well as to NABARD for refinancing RRBs and CCIs.

The financial implication due to the interest subsidy on farm loans will be Rs 4,000 crore this fiscal compared to Rs 4,311 crore in 2008-09, she said.

However, farmers who have been paying back their credit promptly would continue to get loans at six per cent, which means an additional interest subsidy of one per cent.

The government also revised upwards the target for loan disbursements to the agriculture sector to Rs 3,25,000 crore for the current fiscal from Rs 2,80,000 crore a year ago, of which Rs 2,00,000 crore is estimated for the loans on crop.

In the Budget speech this year, Finance Minister Pranab Mukherjee said, "I propose to continue the interest subvention scheme for short-term crop loans to farmers for loans up to Rs 3 lakh per farmer at the interest rate of 7 per cent per annum".

The government exchequer is under pressure due to the slowing economy as well as extension of stimulus packages. Fiscal deficit is estimated to be around 6.8 per cent of GDP this fiscal.

Bureau Report

First Published: Friday, September 11, 2009, 00:12

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