Pay late, it's okay, govt tells farmers

More sops for defaulters; 1% interest subsidy for timely payers.

Finance Minister Pranab Mukherjee has gone beyond what the Congress manifesto promised by offering cheaper credit to farmers who repay their loans in time and extending the repayment period for loan defaulters covered under the Rs 71,000-crore agriculture debt waiver and relief scheme announced in February 2008.

So, defaulters who had to clear 75 per cent of their dues to avail themselves of debt relief now have an additional six months — up to December 2009 — to clear their arrears. Farmers with over two hectares of land were to pay 75 per cent of the dues up to June 30, 2009, while the rest was to be paid by the government.

Mukherjee used the delayed monsoon as a reason for extending the loan repayment period. With a defaulter tag, farmers would not have got fresh loans for the ensuing season. The government announcement has came just in time.

Bankers said the Budget announcements would improve the repayment culture as the number of defaults had shot up following the farm loan waiver scheme in the run-up to the general elections.

Ahead of the assembly elections in Maharashtra, the FM also announced the establishment of a task force to study issues faced by farmers under the clutch of moneylenders. These farmers were not covered under the waiver scheme.

Setting a target of Rs 3,25,000 crore for agriculture credit during the current financial year, 13.24 per cent higher than last year, Mukherjee said farmers who repaid their loans on time would get loans at 6 per cent a year (due to 1 per cent additional subsidy). The additional subsidy is expected to cost the exchequer Rs 411 crore this year.

“There was an option before the government to waive the repayment obligation. But this would have given a wrong signal that even if you failed to pay up, the government would bail you out. It would have affected the repayment culture,” said the head of a mid-size public sector bank.

Union Bank of India Chairman and Managing Director MV Nair said in case of his bank, about 40,000 farmers were expected to benefit from the six-month extension.

By giving farmers more time to take the benefit of scheme, the government has encouraged repayment. It has also saved banks from rising bad loans in the farm sector at a time they are facing rising slippages in payments by companies and small and medium enterprises.