Govt plans booster dose for farm sector

NEW DELHI: Prime Minister Manmohan Singh may have had to take a heavy duty reality check on the success of his government’s measures in the farm sector at his meeting with the Agriculture Coordination Committee on Thursday night.

Given that, the government is now actively considering making agricultural credit up to Rs 3 lakh collateral free. That is only one key measure that the government is now likely to take to shape up credit measures in the farm sector.

Among the issues that tumbled out of the closet at Thursday’s meeting: the co-operative credit structure has failed to lend to farmers at 7% primarily because NABARD is unable to provide refinance to the Rs 14,000 crore. Ergo, co-operative credit institutions urgently need an interest subsidy on the sums to be arranged by them towards administrative and overhead expenses. This has been estimated at Rs 22,000 crore.

Without this, experts cautioned, the risk of the sector shying away from lending to small farmers or becoming unviable was high. Two, commercial banks have only provided fresh finance to 24% of farmers in distress whose accounts were restructured in ‘04-05 and ‘05-06. Three, only 46% of the total of 12.7 crore cultivators in the country have been issued the much-vaunted Kisan Credit Card (KCC) upto March ‘06.

In real terms, that’s an uninspiring total of 5.8 crore in respect of KCC. The despair over the slow progress means that the government may now set a deadline for banks to cover all farmers under the KCC by March ‘07. Banks may also be directed to ensure that all farmers financed during the year be mandatorily covered under the KCC. During ‘05-06, commercial banks isued 38.06 lakh fresh KCC as against 47.3 lakh new farmers financed by them.

The meeting, which was taking stock of the success of measures to counter farm suicides in 31 key districts, took serious note of the failure of the government on the account restructuring front since this was meant to make the farmers eligible for fresh finance.

So, banks will now be directed to compulsorily ensure that fresh finance is provided in respect of all accounts which have been restructured under the Farm Credit Package over the last two years.

What has set the government seriously considering the possibility making loans upto Rs 3 lakh collateral free (not more than Rs 50,000 now) is the status report presented on Thursday night.

The rate of interest is not the only cost incurred by the farmer for borrowing from institutional sources and currently, the farmer can only sustain credit servicing if assets created out of loan yields are more than the total cost of borrowing to repay interest and, eventually, the capital element of the loan.

With effect from kharif ‘06-07, farmers were to receive short term credit at 7%, with an upper limit of Rs 3 lakh on principal amount, subvention for which was to be given by Nabard.