While the Centre has made it clear that the states announcing farm loan waivers will have to do so from their own resources, it on Wednesday sought to play its part in assuaging farmers’ woes. Short-term crop loans of up to Rs 3 lakh will continue to attract a subsidised rate of 7 per cent this fiscal and farmers making “prompt” repayments will get the loans at just 4 per cent, as the Cabinet on Wednesday approved a proposal to extend its interest subvention scheme for such loans to 2017-18.
Although the government’s move to keep the cost of short-term crop loans cheap comes as a breather for farmers struggling to cope with a fall in prices of some commodities, the cost to the government on account of the move is estimated at Rs 20,339 crore in 2017-18.
The Cabinet also decided to provide farmers loans for post-harvest storage of their produce at a subsidised interest rate of 7 per cent for six months. For those farmers adversely affected by natural calamities, the government has decided to give a 2 per cent interest subsidy for first year on the restructured loan amount. The institutional credit will help farmers shift from unorganised sources of credit (where they are forced to borrow at exorbitantly high rates of interest) to institutional ones. Since crop insurance under the Pradhan Mantri Fasal Bima Yojana is linked to availing of crop loans, the government’s latest decisions will benefit farmers.
In recent months, farmers from Madhya Pradesh to Tamil Nadu to Punjab have been demanding complete waiver of loans, citing lower realisations. Uttar Pradesh has already announced waiver of farm loans of Rs 36,360 crore; although Maharashtra is yet to announce how much loans will be waived, reports suggest that these would be around Rs 35,000 crore.
Interest subsidies and loan waivers are sure to put a question mark on the credibility of the fiscal consolidation exercise to be undertaken by both the Centre and the states in 2017-18, more so when government spending has been a prime driver of the economy as private investments falter. The Centre aims to cut the fiscal deficit to 3.2 per cent of GDP in 2017-18 from 3.5 per cent in the last fiscal, while states, according to the NK Singh panel, need to cut their fiscal deficits by 16 basis points a year from 2.98 per cent in 2016-17 if they want to achieve the current debt-to-GDP ratio of 21 per cent again in 2024-25.
States that have fared commendably on the fiscal front between 2004-05 and 2013-14 reported slippages since then as their tax revenue growth plateaued; the consolidated fiscal deficit of states is reckoned to be not less than 3.4 per cent of GDP in 2016-17 and the target of 2.6 per cent for the current year looked optimistic even before the loan waiver packages.
Through the subvention scheme, the government offers an interest subsidy of 2 per cent per annum for short-term crop loans of up to Rs 3 lakh per farmer on the condition that the lending institutions make short-term credit available at the ground level at 7 per cent to farmers. An additional 3 per cent interest subsidy is provided to the “prompt payee farmers”.
The interest subvention scheme, which has been continuing since 2006-07, will be implemented by the National Bank for Agriculture and Rural Development (Nabard) and the Reserve Bank of India. The RBI last month had asked banks to continue to give the discount on interest on short-term crop loans in 2017-18. However, RBI governor Urjit Patel had earlier questioned the policy of loan waiver and interest subsidies. FE