Farmers, who constitute nearly two-thirds of Indians, will continue to get priority loans worth nearly Rs. 7,00,000 crore during 2013-14, up 40% from Rs. 5,00,000 crore, apart from interest discounts, Union finance minister P Chidambaram announced in Thursday's budget.
Farmers depend on loans for agricultural inputs, such as diesel for irrigation, seeds and fertilisers, whose expenses are rising.
However, easy cash with interest discounts comes only for those who do not default on payments. Interest on farm credit for those paying on time was brought down to 5% from the standard rate of 7% in the last budget, in addition to providing them more time to repay loans. This year, those making timely payments will get farm loans at 4%.
So far, the discount scheme was available for loans by government and cooperative banks but now it will also apply for loans by private-sector banks, such as Axis Bank, which have credit facilities for farmers.
Farm loan targets, in fact, have been raised consistently. In the last financial year, the target for loan disbursal to farmers was hiked from Rs. 3,75,000 crore to Rs. 4,75,000 crore, a jump of nearly 27%.
India's aggressive farm credit policy - ranging from soft loans to higher support prices - has put soft cash into stressed farmhands, cushioning the impact of higher prices.
In 2008, a mammoth loan waiver, called the Agriculture Debt Waiver and Debt Relief Scheme, worth Rs. 60,000 crore was announced for debt-ridden farmers.
The finance minister said in his budget speech: "Agricultural credit is the driver of agricultural production. We will exceed the target of Rs. 5,75,000 crore fixed for 2012-13. For 2013-14, I propose to increase the target to Rs. 7,00,000 crore."
To boost market facilities, the budget announced Farmers Producers Organisations (FPOs), allocating Rs. 50-crore matching equity grants.
The ability of banks to meet targets has encouraged the finance minister to set an even higher target for 2013-14. Politically, such steps help garner support from farmers, who form powerful voting blocs.
Timely availability of agricultural credit at reasonable rate, especially for small and marginal farmers, is crucial for agricultural growth.