Govt to foot Rs 1600 cr farm credit subsidy

The government will spend Rs 1,600 crore in the current financial year to provide farmers with a subsidy on the interest they would pay on short-term agricultural loans.

The current year's target for total agricultural lending is Rs 1,75,000 crore, of which 70 per cent would be short-term credit.

The government would provide subvention of 2 per cent to commercial banks and regional rural banks on all agricultural crop lending of up to Rs 3 lakh, a finance ministry official said.

As part of the package, Nabard would provide refinance to cooperative banks at 2.5 per cent and to regional rural banks at 4.5 per cent.

The government will not provide subvention to private banks and cooperative banks, that give short-term agricultural credit as part of their own lending programmes.

As state governments have a major stake in the cooperative banking structure, the central government expect them to help cooperative banks in providing subsidised short-term agricultural credit.

The government's plan to provide subvention on short-term agricultural credit has come on the heels of the Finance Minister P Chidambaram's promise in the last Union Budget that the government would ensure the farmer receives short-term credit at 7 per cent.