Cabinet approves interest subsidy of upto 5% on crop loan

Amid agricultural loan waivers and protests by farmers in many states, the Centre Wednesday decided to make loan cheaper for farmers.

Under the proposal approved by the Union Cabinet headed by Prime Minister Narendra Modi, the Centre will provide a subsidy of upto 5% on interest of farm loans, sources said.

They said under the scheme, a 2% subsidy on interest of agricultural loan will be given to all farmers. Additionally, a 3% subsidy will be provided to those who pay back such loans on time. Thus, the effective rate of interest for those who make a timely repayment of loan will be 4% as against the prevailing 9%.
The scheme will be available for short term crop loan payable within one year. The scheme will be available for loan amount of upto Rs 3 lakh, sources said.

The proposal is expected to cost the exchequer Rs 20,339 crore in 2017-18.  “The interest subvention will be given to public sector banks, 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,” an official statement said after the meeting.

 The Interest Subvention Scheme will continue for one year and it will be implemented by Nabard and RBI, it said. To provide relief to the farmers affected by natural calamities, the interest subvention of 2% will be provided to Banks for the first year on the restructured amount, the statement said.

The Cabinet decision comes amid farmers protests in Madhya Pradesh demanding farm loan waiver. Protests had also been witnesses in Maharashtra which has announced such a waiver. Earlier this year farmers of Tamil Nadu sat on a dharna in Delhi demanding Rs 40,000 crore as a waiver but were partly compensated by the Centre.  Uttar Pradesh too has announced a loan waiver of Rs 36,000 crore.