Bulk of crop loan interest subvention for settling earlier dues

A sum of Rs 15,000 cr has appeared under the head of interest subsidy as allocation for short-term credit to farmers in the 2016-17 Budget

Did the Union Budget proposals give a misleading picture of the allocation to agriculture by shifting one big item under different heads? Officials deny the charge.

A sum of Rs 15,000 crore has appeared under the head of interest subsidy as allocation for short-term credit to farmers in the 2016-17 Budget of the ministry of agriculture.

Earlier, this item was part of the budget of the department of financial services, in the finance ministry. It is the amount granted every year to banks for collecting less interest from those farmers who make timely repayment, one of the most direct interventions the Centre makes for all farmers who avail of crop loans.

This shift has raised the Budget’s spending estimate on agriculture by as much as 94 per cent from the ministry’s Revised Estimate for 2015-16. And, triggered an allegation of dressing the account books to create a pro-farmer image.

Officials said the allocated Rs 15,000 crore would mostly be spent on clearing earlier dues which have accrued to farmers, estimated at Rs 18,000 crore.

“There are many practical difficulties in administering the interest subvention from the agriculture ministry, as banks are responsible to the ministry of finance. Why would they adhere to instructions from the agriculture department, which does not have any jurisdiction over them?” said a former official from the agriculture ministry.

He said there might even be difficulties in urging banks to clear the Rs 18,000-crore backlog from previous years, for this reason.  

The plus point for the future in this shift is that it might help in better monitoring of farmers availing of the crop loans.

Sources said — this couldn’t be confirmed — that the ministry of agriculture was initially not keen to accept this transfer from the ministry of finance.

A paper which analyses the exponential growth in agricultural credit between 2000 and 2011 shows the share in total direct credit of loans less than Rs 2 lakh fell from 92.2 per cent in 1990 to 78.5 per cent in 2000 and 48 per cent in 2011. In other words, the bulk of loans advanced for agriculture moved away from small, marginal or medium farmers and towards larger business interests.

That apart, the month-wise disbursal data also showed that almost 46 per cent of farm credit was availed of between January and March every year, a period when there is minimal farming across the country.

In 2005-16, the Centre fixed a target of distributing crop loans amounting to around Rs 8.5 lakh crore. For 2016-17, this has been raised to Rs 9 lakh crore.