State governments, which are striving to achieve 4 per cent growth in agriculture during the 11th Plan period (2007-12), have made a strong pitch for repayment of short-term loans by farmers in case of natural calamities at an interest rate of 7 per cent and not at the regular rate of over 10 per cent as fixed by banks.
States like Bihar, Rajasthan, Karnataka and Orissa have made a strong appeal that during natural calamities, short-term loans get converted into medium-term loans and the farmers turn defaulters. Thus, they suggest that the repayment of such restructured loan be allowed at 7 per cent during the three-year period.
Informed sources told Business Standard there was a great difference between a farmer turning defaulter due to natural calamity and those faulting because of their failure. States say it would be a relief for farmers if repayment is allowed at 7 per cent for the restructured loan.
Moreover, the states have maintained that there was a strong case for allowing the interest subvention rate at 3 per cent even for the restructured period of the loan. They argue that as the interest subvention rate of 3 per cent for the period exceeding one year is not being allowed, the farmers would have to pay a higher interest rate of 10 per cent for the restructured loan. The Centre provides interest subvention at 3 per cent annually for the short-term crop loan disbursed to farmers at 10 per cent interest.
A senior official, who did not want to be quoted, said: “The crop loan to the existing loaners has been rescheduled for a period of three years in view of declaration of drought or other calamities. No repayment of this loan is insisted upon by the bankers in the current financial year. However, since the loans have been rescheduled for a period longer than one year, interest subvention at the rate of 3 per cent for the period exceeding one year is not being allowed. This should be allowed even for the restructured period of the loan to reduce the burden on farmers.”
The Rajasthan government says that interest subsidy has been reduced to 2 per cent in 2009-10. However, the state government opined that due to the weak financial position of cooperative institutions, the interest subsidy will be raised to 3 per cent in 2011-11.
More From This Section
Further, states also appealed to the Centre to bring down the farm interest rate to at least 5 per cent from the present 7 per cent. According to states, the reduction in interest rate would give a much-needed boost to farm production and promote inclusive growth. Bihar, Rajasthan and Orissa were at the forefront to make this demand during a meeting of the states’ representatives with Union Finance Minister Pranab Mukherjee on January 13.
These states were joined by other states too. They would once again take up the matter ahead of annual budget.