Interest Subvention to banks on Short-Term crop loan to farmers

• The government has approved the Interest Subvention Scheme (ISS) for farmers for the year 2017-18.

The salient features of the scheme are as follows:

• The Central Government will provide interest subvention of 5 per cent per annum to all farmers for short term crop loan upto one year for loan upto Rs. 3 lakhs borrowed by them during the year 2016-17. Farmers will thus have to effectively pay only 4% as interest. In case farmers do not repay the short term crop loan in time they would be eligible for interest subvention of 2% as against 5% available above.
• The Central Government will give approximately Rs 18,276 crores as interest subvention for 2016-17.
• In order to give relief to small and marginal farmers who would have to borrow at 9% for the post harvest storage of their produce, the Central Government has approved an interest subvention of 2% i.e an effective interest rate of 7% for loans upto 6 months.
• To provide relief to the farmers affected by Natural Calamities, the interest subvention of 2% will be provided to Banks for the first year on the restructured amount.
• In case farmers do not repay the short term crop loan in time they would be eligible for interest subvention of 2% as against 5% available above.

Analysis:

• This could be to help the marginalized and the weaker sections of society.
• In the agriculture sector, such schemes have been floated to enhance the loan repayment by farmers as government has further provided incentives to farmers who repay loans as per the schedule.
• Also, government in order to boost the staggering sales of the low-cost housing segment has provided an incentive in the form of interest subvention.
• With the interest subvention in hand, EMI of the borrower scales down by the % of interest subvention granted by the government. Consequently, the scheme proves to be advantageous both for the end-consumer as well as the sector as a whole.
• Also, considering the economic scenario, the scope of the scheme is expanded for different sectors from time to time. For instance, in order to pull back the flagging shipments, government further incentivised the merchandise exports. The scope of the scheme had been widened not only with respect to the further interest rate subvention grant but also in terms of the number of businesses that form its part.

By: Vishal