Cheaper loans to boost farm sector

INTERIM BUDGET & THE ECONOMY/AGRICULTURE

Carrying the process of farm credit reforms forward, Finance Minister Jaswant Singh today announced a further reduction in interest on farm loans, extension of the Kisan Credit Card scheme to all eligible farmers and a Rs 15,000 crore revitalisation package for cooperative banks.

The Budget speech also proposed relief to farmers in terms of collateral security for loans and exemption of capital gains tax on the compensation for acquisition of agricultural land by the government.

Besides, the farm income insurance scheme, now being implemented on a pilot basis in 20 districts, is proposed to be extended to 100 districts from the next kharif season.

To help the poor in acquiring access to bank credit, the concept of self-help groups (SHGs) is proposed to be promoted in a big way.

Singh reiterated the government's commitment to usher in a second Green Revolution in agriculture as part of the 'Panch Priorities' announced in the previous year's Budget. He also voiced commitment to ensuring timely credit at affordable rates to farmers.

Pointing out that the interest rate on crop loans by public sector banks had recently been brought down to 9 per cent, Singh said some of the banks had agreed to his plea for reducing it to below this level.

"Some public sector banks have already done so. I am confident that other banks will also respond by offering loans at rates lower than those prevailing currently", he said.

To stop the practice of banks mortgaging the entire land holding of a farmer as a security against loan, the finance minister advised banks to assess individual credit-worthiness and not to routinely insist on additional collateral through land mortgage. "As a principle, collateral security should be proportionate to the value of the loan", he stated.

A committee headed by agriculture economist V.S. Vyas has been set up to look into the issues concerning non-performing assets related to crop loans. It would submit its report within 90 days.

Referring to cooperative credit, he observed that the cooperative banks, which had played a vital role in the flow of rural credit, were facing a variety of problems that were hampering their capacity to deliver credit at reasonable interest rates.

A Rs 15,000-crore scheme had been prepared to help revitalise these cooperative banks. This amount would be shared appropriately by the Centre and states. The scheme would be operational once the revised regulatory framework was put in place.

Announcing that Kisan Credit Cards were likely to be given to all eligible farmers by March 2004, he said these cards would also be modified, on individual request, for use on ATM machines in areas where such machines were available.

Describing the functioning of the SHGs as a remarkable success story, the finance minister revealed that Nabard had been asked to take up a special promotional campaign in the states where this programme was yet to gather momentum.

To begin with, an intensive campaign for this purpose would be launched in Uttar Pradesh, Rajasthan and Madhya Pradesh. The public sector banks would supplement this effort in other states.

Noting that farmers faced hardships due to tax on capital gains and accrued interest on enhanced compensation for the acquired agricultural land, Singh said such acquisition should be exempted from tax.

There should also be no deduction of tax at source on the interest earned on enhanced compensation for acquisition of farm land, he added.

Referring to the recent announcement of creating the agricultural infrastructure and credit fund (AICF), Singh said it would provide credit at highly competitive rates; about 2 percentage points below the prime lending rate, without compromising the norms of financial prudence.

To be called 'Lok Nayak Jai Prakash Narayan Fund', the AICF would lend credit support to infrastructure facilities such as wasteland development; completion of incomplete and new minor irrigation projects; grading, certification and storage of agro-products; and construction of modern abattoirs.

The farm income insurance scheme, launched from the current rabi season in 20 select districts on a pilot basis, would be extended to 100 districts from the next kharif season.

The scheme envisages protection of both crop yield and income of the insured farmers. More details of this proposal would be announced by the agriculture ministry, Singh said.

The finance minister described cattle as "a vital integral of our rural economy" and said the government proposed to give a boost to the entire gamut of this economic activity, including animal husbandry, dairy farming and sheep rearing.

The government would also consider setting up of a national cattle development board with appropriate budgetary support, he added.