Farm credit below 7 % not possible: Chidambaram

The government has said it was not possible to reduce the interest rate on farm sector short-term credit below 7 per cent, keeping in view the current inflation rate and interest rates in the economy.

The Budget for 2006-07 (April-March) had proposed to reduce interest rate on farm credit up to Rs 3,00,000 to 7 per cent.

"Having regard to the rate of inflation today, having regard to the bank rate, having regard to the call money rate and having regard to the repo and reverse repo rates, it is not possible nor is it wise having regard to the health of the banking system-to bring it (interest on farm loan) down to below 7 per cent," said Finance Minister P Chidambaram to Rajya Sabha during question hour.

He said the scheme to provide farm loans at 7 per cent will be finalised in some days.

Chidambaram said the National Bank for Agriculture and Rural Development will appropriately refinance cooperative banks if they provide farm loans at 7 per cent interest.

At present, farm loans are provided by cooperative banks at interest rates between 6-14 per cent, Chidambaram said.

The finance minister also said commercial banks are being advised to provide short-term loans to farmers at 7 per cent.