Budget to give farmers higher consumption credit

In the coming Budget UPA is likely to give a new look to the consumption loans for the farming community, as part of a intensive bid to give a fresh direction to farm credit, against the conditions in which several hundred farmers did suicide which has rattled the government politically. The slab for such loans can be moved up much higher than Rs 50,000.

More troublesome are the virtually-static figures of farmers who have taken loans from the formal credit system during the year. In the year 2005-06 the actual achievement was at Rs 1.80 lakh crore where as the farm credit target for 2006-07, stood low at Rs 1.75 lakh crore. Though, a high credit level of Rs 2.03 lakh crore was achieved in 2006-07.

In 2007-08, the achievement up to October was Rs 1.20 lakh crore as against a target of Rs 2.25 lakh crore. In the year 2006-07 the number of farmers who took loan were around 84 lakh farmers as compared to only 79 lakh in 2005-06. Whereas, compared to mid-January this year, the level has gone much lower than during the same time in 2006-07. According to highly-placed officials sources this can be credited to several payment defaulting farmers, increasing the ranks of those ineligible for fresh loans.

“Cooperative banks have given out more in terms of quantum of loan amount but to far fewer farmers, and they are key institutions of farm loans in rural areas,” they emphasized. “Farmers are the only community that do not get special terms for consumption credit,” sources maintained, adding, “There is urgent need to make a distinction between investment credit and consumption credit for the farmer. Credit over Rs 2 lakh is by and large investment credit. We have to resolve this definitely now.”

In principle, farmers are eligible for consumption loans like every other section of the society. In reality though, banks have shown a well-established disinclination towards relaxing of collateral and margins similar to crop loan terms even for smaller loans aimed at consumption needs.

Budget is likely to have suggestion for softer terms and conditions for smaller investment loans in the farm sector such those needed for pumpsets etc. Radically, the government is doubtful to consider demands from farm lobbies for an interest rate cut to 4% this year, particularly in the face of the Rs 60,000-crore farm relief package which is planned for farmers in interest payment waivers and NPA writeoffs. It is understood that in its place, the overall focus is going to be on getting more farmers into the formal credit network.

In 2007-08, banks have been advised to relax margins/collateral security/third party guarantee requirements from farmers for loans up to Rs 50,000. A 2% financial assistance on interest was also be given for loans up to Rs 3 lakh but those measures did not worked well enough on the ground. Currently, crop loans — officially, at least — charge a 7% interest rate and some states even underwrite this further, bringing down interest rate to 6%.

Less than 40% of the country’s farmers are able to get access to formal credit institutions. According to NSSO out of those that do get, a substantial third of the all farm credit in rural India are short term loans of which most of these are taken by small and marginal farmers for personal reasons.