Burdened by Rs 500 crore extra interest on grain procurement advance, Punjab’s hopes rest on April 10 meeting with banks
While the Centre reimburses most of the amount spent by the Punjab government to procure grains from farmers, the additional interest is incurred due to the difference in banks’ lending rates for states.
Every year, state government officials have to go to Mumbai for meetings with the consortium of banks to seek an advance.
Burdened by Rs 500 crore annually on additional interest payments on advance taken for procuring foodgrains worth Rs 80,000 crore for the central pool, fund-crunched Punjab is seeing a ray of hope as a consortium of lender banks led by SBI has finally agreed to a meeting with the state food department on April 10.
In order to pay farmers immediately after their produce (wheat in rabi season; paddy in kharif season) is procured, the Punjab government takes a huge amount in advance from a consortium of banks. This fiscal, it will be taking an advance of Rs 33,000 crore for the procurement of wheat and Rs 47,000 crore for procurement of paddy from a consortium of 30 banks.
This advance, known as Cash Credit Limit (CCL), is credited in the state’s account by banks before the procurement officially starts. After the procured foodgrains are supplied to the Central pool, the money is reimbursed by the Centre to the state. The state then repays the consortium, but it will still have to bear the burden of an additional interest incurred.
This additional interest is generated as banks, which lend money to the Centre at an interest rate of 8.37 per cent, lend it to the states at the rate of Rs 8.97 per cent – an increase of 0.6 per cent. “Technically, this burden should be borne by the Centre as the grains are procured for the Central pool. But we are left to deal with it,” said a government official.
“This is injustice. We have to pay about Rs 500 crore to the consortium of banks every year on account of this 0.6 per cent. The Centre refuses to pay us saying that they borrow money at the interest rate of Rs 8.37 per cent and they would not pay any amount higher than this. The banks tell us that their rate of interest is higher for states. Now, the government wants to pay the procurement price to the farmers immediately after their produce is lifted, the state government has no means to pay the amount from its own account,” said the official.
However, Haryana, which pays minimum support price (MSP) to the farmers from its own consolidated fund, does not have to pay this additional interest. It is applicable only to a couple of states, including Punjab and Madhya Pradesh, which borrow CCL from banks. “Haryana is able to do it as it procures only 100 lakh tonnes of foodgrains while Punjab procures 250 lakh tonnes of rice and wheat every year. Even Madhya Pradesh is contributing more wheat to the central pool than Haryana,” said an official.
“We have taken it up with the Centre several times. They tell us to pay from our own exchequer as the money will be reimbursed from by the Centre after the procurement process ends and the foodgrains are delivered. The state is unable to spare an extra amount to start a new cycle in which it would not have to borrow CCL,” said a functionary.
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He added, “Now, since we have been pressing, the Reserve Bank of India and consortium of banks have agreed to hold a meeting on the issue on April 10. If they agree to levy interest at the same rate as Centre, we stand to save Rs 500 crore.”
Every year, state government officials have to go to Mumbai for meetings with the consortium of banks to seek an advance. Ahead of the wheat procurement season, which starts officially on Tuesday, the state has already got 90 per cent advance of Rs 28,000 crore on account of CCL for wheat. The remaining Rs 5,000 crore will be credited in the second instalment.
The additional interest had accumulated as legacy amount of Rs 31,000 crore in 2016. The state is now paying it back in instalments after the BJP-led government in the Centre asked Punjab to clear its dues. The government has since been careful in clearing the accounts.
Kanchan Vasdev is a Senior Assistant Editor in The Indian Express’ Punjab bureau. She is a highly experienced journalist with 22 years of expertise covering high-stakes politics, governance, and social issues in Northern India.
Professional Background
Role: Primary reporter covering the Punjab Chief Minister’s Office (CMO), government policies, and the Aam Aadmi Party (AAP) leadership in the state.
Experience: She previously worked with The Tribune and has played a key role in launching various city editions.
Special Projects:
Abandoned Brides: Authored a monograph on brides abandoned by NRIs as part of the Prabha Dutt Memorial Fellowship.
Environment: Worked as a Centre for Science and Environment (CSE) fellow, focusing on the pollution levels in the Satluj river.
Recent Notable Articles (Late 2025)
Her recent reporting focuses on the legislative strategies and political maneuvers of the Bhagwant Mann-led Punjab government:
1. Legislative & Governance Standoffs
"Punjab govt advances special Assembly session to pass resolution against VB-G RAM G Bill" (Dec 20, 2025): Reporting on the state's move to block the Centre's "Viksit Bharat" mission, which the state claims will undermine MGNREGA.
"Punjab govt doubles down on special sessions, sixth in January" (Dec 19, 2025): Detailing the AAP government's use of special sessions as a legislative tool amid tensions with the Governor.
"Punjab asks 'VIP teachers' working near Chandigarh to go back to border districts" (Dec 16, 2025): Reporting on CM Mann's move to end the practice of influential teachers avoiding postings in remote areas.
2. Political Analysis & Rural Polls
"Punjab rural polls: Why Akalis are likened to dinosaurs in Punjab" (Dec 19, 2025): Analyzing CM Bhagwant Mann's rhetoric against the Shiromani Akali Dal (SAD) following local body elections.
"AAP claims win in 78% Punjab zila parishads as counting continues" (Dec 18, 2025): Breaking down the results of the 2025 rural elections.
"Rahul Gandhi and Sidhu alike, says Bhagwant Mann" (Dec 13, 2025): Covering the CM's critique of the Congress leadership.
3. Law Enforcement & Bureaucracy
"Suspended Punjab IPS officer Ravjot Kaur Grewal awaits reinstatement" (Dec 10, 2025): Investigative reporting on the bureaucratic red tape involving the Election Commission and the state government.
"Punjab declines to give parole to Amritpal Singh" (Nov 27, 2025): Detailing the state government's refusal to grant parole to the radical preacher and sitting MP.
4. Welfare & Economy
"Punjab government's plan to add more freebies to 'atta-dal' scheme hits funds roadblock" (Dec 4, 2024): An analysis of the fiscal challenges facing the state's flagship food security program.
"Mann leads Punjab delegation to Japan and South Korea for investor outreach" (Dec 2, 2025).
Signature Beat
Kanchan Vasdev is known for her insider access to Punjab's political executive. Her writing provides deep insights into how state policies are formulated and the friction points between the state government and central authorities. Her dual expertise in environment and law allows her to report on complex issues like the "Farmhouse Policy" (Dec 18, 2025) and river pollution with a unique policy-oriented lens.
X (Twitter): @kanchan99 ... Read More
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