In order to fight inflation by raising farm productivity, finance minister Pranab Mukherjee is expected to increase substantially farm loan disbursal target to over Rs 4 lakh crore in the upcoming Budget.
The government has been giving priority to the farm sector and had enhanced farm credit target by 15.3% to Rs 3,75,000 crore for the current fiscal.
The growth rate of agriculture sector, pegged at 5.4% for the current fiscal, is likely to see moderation in the next fiscal. As per the forecast, the farm sector is likely to see a lower growth rate of 3% in 2011-12.
In the last two fiscals, the government has raised targets in the range of about 15%.
For 2008-09, the target set for the farm credit was Rs 2,80,000 crore while the actual disbursement was Rs 3,01,907 crore.
The target was increased by 16% in the following year to Rs 3,25,000 crore and banks gave Rs 3,66,918 crore advances to the farm sector in 2009-10.
During the current financial year, the goal set by the government is Rs 3,75,000 crore. Of this, banks have already given loans to the tune of Rs 1,94,392 crore in the first six months of the fiscal.
The government since 2006-07 is providing interest subvention to all public sector banks, regional rural banks and cooperative banks for short term crop loans up to Rs 3 lakh, so as to ensure that agriculture credit is available at 7% to the farmers.
In 2010-11 Budget, an additional 2% interest subsidy was announced for those farmers, who repay their short term crop loans timely.
Mukherjee in 2010-11 Budget had said, "In the last budget, I had provided an additional one% interest subvention as an incentive to those farmers who repay their short-term crop loans as per schedule.
"I propose to raise this subvention for timely repayment of crop loans from one% to two% for 2010-11. Thus, the effective rate of interest for such farmers will now be 5% per annum."