A 2 per cent reduction in the interest on crop loans will involve a total subsidy of around Rs 400 crore in a year, it is estimated. The total subsidy burden will go down to Rs 200 crore if the interest subsidy is kept at 1 per cent. The calculation is based on estimated total outstanding loans of all institutions of around Rs 20,000 crore.
Mishra has mooted the proposal in a concept paper, circulated to all members of Parliament, on increasing the flow of credit to small and marginal farmers at concessional rates. The final proposal of the ministry will be prepared after considering the views of MPs, Mishra says in the letter.
The credit subsidy could be extended either as direct budgetary support or through cross-subsidisation by increasing the interest on institutional lending to the non-agricultural sector.
However, if the cheap credit was made available to only small and marginal farmers, the total amount of subsidy at 1 per cent concession will work out to only Rs 100 crore a year.
"Another way of providing cheap institutional credit to small and marginal farmers is that the entire refinance provided by Nabard to cooperatives and regional rural banks should go to them (small and marginal farmers)," Mishra has suggested.
Another way of achieving this objective would be to reduce interest at various levels in the cooperative credit structure.
However, the agriculture minister cautioned that this may not be the correct approach as the real interest margins available at different levels of the credit structure are thin and any reduction would affect the viability of the lending institutions.
Institutional credit accounts for nearly 53 per cent of the total disbursement of agricultural credit.
In absolute terms, the total institutional credit under the multi-agency system, which stood at Rs 15,169 crore in 1992-93, is projected to shoot up to Rs 28,817 crore in 1996-97.
