Punjab to save Rs 50 crore annually as consortium of banks reduce additional 0.05% interest on food credit

“It may not sound like a huge amount, but it is like winning a war against injustice. We will save Rs 50 crore. We will keep fighting, and take the matter with the Centre too,” a government officer told The Indian Express.

According to officials, during the last fiscal year, ending in March 2025, the Punjab government had a CCL of about Rs 79,000 crore and paid an interest of Rs 6,000 crore. After the procurement, the FCI paid back only Rs 5,400 crore of the Rs 6,000 crore interest, thus leaving the state government to pay an additional Rs 600 crore to the banks. Similarly, in the 2023-24 fiscal, the government paid an interest of Rs 5,500 crore, while it got only Rs 5,000 crore in the recoup, they said.

Neighbouring Haryana pays the MSP to the farmers from its consolidated fund, so it does not have to pay interest. “Punjab and Madhya Pradesh borrow CCL from the banks and have to pay the interest. Haryana can do it as it procures only 100 lakh tons of foodgrains, while Punjab procures 250 lakh tons of rice and wheat every year. Even Madhya Pradesh is contributing more wheat to the central pool than Haryana,” authorities in Punjab claim.

Thus, the Punjab government contended that it has to pay an interest of 8.97 per cent to the lead banks, which offer food credit loans to the Centre at an interest of only 8.37 per cent.

Citing Article 293 of the Constitution, which deals with the borrowing powers of the States, Punjab stated that it should also get the same rate of interest as the Centre, official sources said.

The consortium of banks, however, argued that a state guarantee cannot be compared with the Union guarantee, it is learnt.

With Punjab government officials holding five meetings in five months with the consortium of banks, the SBI has now written to the state that it has agreed to reduce the interest rate by 0.05 per cent.

Punjab takes an advance to procure wheat and paddy twice a year. While the advance for wheat is about Rs 35,000 crore, it is more in the case of paddy at over Rs 45,000 crore. The advance is credited into the state’s account by the banks before the procurement officially starts. At the time of recoup by the Food Corporation of India (FCI), the state only got the actual amount and had to pay Rs 500 crore extra to the banks. From now on, it will pay only Rs 450 crore.

“The Centre should be paying this interest also, as we procure grain for the central pool,” the officer added.