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In news: Union cabinet approved the total expenditure of Rs. 20399 crore for current financial year for the interest subsidies scheme on short term crop loans. This is significant in the backdrop where there is demand for farm loan waivers is growing with UP and Maharashtra farm loan waivers already being announced. It is expected that decision will lessen the hardship of the farmers.
From 2006-07, the interest subvention scheme is in operation. As against the interest rate on certain crop loans, the government says that farmers will get short term credit upto Rs. 3 lakhs at 4% for those who are paying their loan on time. Similarly, small and marginal farmers who borrow at 9 per cent for the post harvest storage of their produce will get an interest subvention of 2 per cent, bringing down the interest burden to 7% per annum. The farmers who have to sell their produce immediately after the harvest in distress because they can’t store it, now they can get subsidised loan to keep their produce in warehouse for six months and sell when market prices are high.
In an event of natural calamities such as drought, flood, the banks will restructure the loan. For this, the interest subvention of 2% will be allowed then. This will send the message that central government is keen to solve farmer issues.
Catch 22 situation
Farmers get in a bad situation when there is a bumper crop and not getting prices which they should get. They also get into bad situation when there is loss in crop.
So some people misuse the interest subvention scheme and other segment which needs these kind of interest subvention is deprived of it.
If people are misusing subsidised credit, lending on higher amount of interest rate, there should be a check. There should be provision at local level to keep a check on that kind of mechanism. If this becomes a regular phenomenon then it leads to indiscipline. Also it leads to disruption in whole state financial system and banking system and further there wouldn’t be much scope for operating properly and wouldn’t be able to give loans to farmers.
What should be done?
If only when there is extremely distressing situation that such farm loan waivers should be carried out. The message shouldn’t go that if you don’t pay till a certain period, it will be waived off at some point of time, especially during election.
The interest rate at which farmers borrow is adequate because if they have to borrow from private money lender they have to pay 30-40%. So as compared to that, they are getting highly subsidised credit. However, the farmers are not concerned with interest rate or institution of credit but that it should be timely available.
Rise in interest subsidies
In the last two years, interest subsidy scheme has got doubled and now it is 20000 + crore in 2017-18.
This is not a big change as every year the credit provided to farmer is increasing so proportionally the government also gives interest subvention. The farm loan credit has increased from 9 lakh core to 10 lakh crore. Farmers need this credit for investment in farms. And also at the same time agri business like input dealers and traders also need support as they are also part of agriculture.
The overall agriculture credit flow- direct and indirect must improve significantly to accelerate the agriculture.
The farmers who are indebted to private traders and commission agents, they will continue to be in debt traps and would never be able to invest on their own. Thus credit support to them should be also provided.
For the farm loan waiver which is undertaken by any state government, the central government has made clear that if any state wants to go beyond any interest subvention scheme, they will take their burden on their own books.
Farm crisis affects our overall productivity growth- agricultural as well as economic growth. The central government must discuss with the state government when such decisions are taken. The premium on crop insurance is shared by both centre and state although it is a central government scheme. So if there are any farm loan waivers, even they can have to be shared, depending upon the level of distress and amount of loans waived.
Also, there is a need for national policy which will help farmers in longer term perspective than resort to short term measure that government is forced to take. The real relief to farmers can only come through systematic structural reforms in the sector, focussed on achieving greater incomes especially for the small and the marginal farmers.
Connecting the dots:
How are farm loan waivers affecting the economy of a nation? Critically analyse steps to be taken to lower farm distress.
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