ASSOCHAM welcomes the Finance Ministry instruction to public sector banks to continue the interest subvention scheme for short-term loans of up to Rs 3 lakhs to agriculturists and the scheme would be revised within three months to make it more effective. The deadline set for revision namely June 30, 2015, if adhered to, should help banks to reset their lending to effectively help farmers for the forthcoming kharif season.
ASSOCHAM itself had pointed out in its recent study dated March 2015 on farm indebtedness that agricultural loans are not benefiting small and marginal farmers and that there seems to be considerable diversion of bank funds set apart for farm loans to other sectors. “We are glad that the Government has come forward with a relook at the farm loan issue to make it more effective in boosting agricultural growth, especially as the growth in this sector has slowed down despite higher credit provision and recent unseasonal rains and hail might further weaken the growth initiative,” Chamber Secretary General DS Rawat said in a press statement.
Releasing a detailed paper on farm loans in the context of recent damage to farm economy due to unseasonal rains and hail, the chamber has reiterated that there is a basic structural weakness in the farm front and that is the main reason that banks are reluctant to direct loans to small and marginal farmers. In fact the data clearly indicates farm loans are mostly given to large farmer borrowers and the small and marginal ones are heavily dependent on traditional sources, mostly money lenders despite the huge interest rates they charge. This is one more factor that drives farmers to take extreme step when faced with demand by the usual money lenders for return of the outstanding loans from farmers, especially in a year of crop failure for one reason or the other, Rawat pointed out.
The Finance Ministry statement was necessitated by the impression that went round the banking circles that the interest subvention scheme for small loan takers in the agriculture sector is not being continued after its expiry on March 31 this year. The scheme had promised low interest loans at 7 percent with an additional 3 per cent reduction for timely repayment, making the effective interest rate at just 4 percent as against the 10 to 11 percent interest the banks charged other sectors while traditional sources like money lenders charged around 25 percent.
ASSOCHAM study on “Farm indebtedness” had pointed out that institutional finance hardly reached bulk of small farmers who constitute the majority, almost two-thirds of agricultural households in the country. Naturally in a scenario of widespread distress among farmers due to climate volatility on the one hand and product glut in some areas for potatoes and fruits, the timely clarification should help mitigate concern among farmers, the chamber official said.
The study paper released today has once again urged the NDA Government to revisit its 2013 opposition to raising FDI in retail chains. The paper has shown that despite handling millions of tons of food grains, the public sector FCI has not been able to provide adequate and safe storage space for the grains it handles. The chamber study also exposes the very inadequate cold storage facility in the country for fruits and vegetables as a result of which the wastage of these costly products drains the country’s agricultural resources on a large scale and also keeps prices of these at the consumer level rising benefiting only some middlemen.
Rawat pointed out that building an intelligent supply chain and ending the dominance of the Agricultural Products Marketing Act to enable farmers to directly sell their products in a competitive market, would also enable them to gain more institutional credit. It would also help create a competitive market for food products thereby help moderate sustained inflation of farm products.