| Finance minister Jaswant Singh with agriculture minister Rajnath Singh in New Delhi on Wednesday. (PTI)
New Delhi, July 16: In a major pre-election sop to farmers, the government today announced that it would slash interest on crop loans to a maximum of 9 per cent from current levels of 14-16 per cent.
“Banks have been directed to provide farm loans up to Rs 50,000 at a maximum interest rate of 9 per cent,” finance minister Jaswant Singh said. “This has been done to pass on the full benefit of declining interest rates to the small and marginal farmers.”
The Indian Banks Association has instructed all state-run banks to cut lending rate on agricultural advances to a maximum of 9 per cent from the current 14-16 per cent rate which would drive credit inflow to Rs 7,36,510 crore by 2007 from the current levels of Rs 70,810 crore, he said.
In April, the Reserve Bank had cut its benchmark bank rate by a quarter point to 6 per cent to kick-start the faltering economy after the worst drought in 15 years had dented economic growth to 4.3 per cent.
“Plans are also afoot to franchise post offices to disburse loans directly to farmers and a pilot project would start in Tamil Nadu,” he added.
The finance minister also said the government was planning to amend the Nabard Act to ensure that the nodal agri-credit bank was able to give loans directly to district central co-operative banks which would keep the retail interest down.
“Through this mechanism, the interest rate on farm loans charged by co-operative banks will come down to about 9 per cent,” he said. Currently, refinancing of Nabard loans was at 6.5 per cent but the actual interest rate worked out to 16-18 per cent after passing through several layers of intermediaries. Singh said that interest rates on loans for purchase of farm equipment, including tractors, would be lowered.
“A consortium of banks led by State Bank of India has been formed to negotiate with the manufacturers and dealers of tractors and other agri-equipment to obtain the maximum possible discounts and concessions,” he said.
The finance minister also said the monsoon was normal in all meteorological divisions, inflation would hover between 4.5-5.5 per cent and the macro-economic parameters were robust.
“As of yesterday, monsoon has been normal in all the 36 meteorological divisions,” Singh told a news conference. “There is not a single division that has not got normal rainfall.”
The monsoon is the lifeline of the economy as only one-third of India’s arable land is irrigated. The farm sector accounts for about a quarter of total output and employs more than two thirds of the country’s billion-plus people. Last year’s drought caused agriculture production to contract 3.1 per cent in the fiscal ended March 2003 which, in turn, stunted the GDP growth.