Rs 20,500-crore loan support for farmers to sow crop

Updated on May 20, 2020 06:47 AM IST

Farmers access agricultural loans, critical for meeting inputs such as fertilisers, seeds and power, through three types of rural banks across states.

Farm-sector credit announced by Sitharaman is yet to be notified by the Reserve Bank of India, but the quick loans will go from NABARD, India’s main state-run financier for rural needs.(Photo: Waseem Andrabi / Hindustan Times)
Farm-sector credit announced by Sitharaman is yet to be notified by the Reserve Bank of India, but the quick loans will go from NABARD, India’s main state-run financier for rural needs.(Photo: Waseem Andrabi / Hindustan Times)
Hindustan Times, New Delhi | By

The Union government will issue Rs 20,500 crore worth of quick loans to farmers who need money for the critical summer-sowing season starting in June, a tranche that will be drawn from an already available fund, but which will ultimately be replenished by farm-sector credit announced by finance minister Nirmala Sitharaman,an official from the National Bank for Agriculture and Rural Development (NABARD) said on condition of anonymity.

Farmers access agricultural loans, critical for meeting inputs such as fertilisers, seeds and power, through three types of rural banks across states. These are 33 state co-operative banks, 352 district central co-operative Banks and 43 rural regional banks.

During India’s summer-sown season, known as kharif, farmers plant the widest variety of crops, such as rice, pulses, groundnut, coarse cereals, sorghum and maize, among others. This accounts for half of India’s annual food output.

Farm-sector credit announced by Sitharaman is yet to be notified by the Reserve Bank of India, but the quick loans will go from NABARD, India’s main state-run financier for rural needs.

NABARD will take usual route of reaching farmers. “NABARD will extend Rs 20,500 crore. Of this, Rs 15,200 crore will be extended through cooperative banks and balance Rs 5,300 crore through rural regional banks as a special liquidity facility in various states,” the NABARD official said .

“It will augment the resources of cooperative banks and rural regional banks to enable them to extend credit to farmers for pre-monsoon and kharif (summer-sown season) 2020 operations,”this person added.

The fund will be made available as a means of “frontloading” of resources of these banks so as to ensure adequate liquidity with them for financing farmers, the official said. Front-loading is a financial term that means upfront injection of liquidity.

The government subsidises short-term crop loans to make farming cheaper. Moreover, banks must necessarily lend to farmers because agriculture is a so-called priority lending sector. All scheduled commercial banks must direct 40% of their adjusted net bank credit towards priority sector lending.

Farmers get crop loans at a cheaper 7% as compared to consumer loans, on which the interest ranges from 12% and 14%. For those making timely repayments, the effective rate of interest is even lower at 4%.

“Farmers have already accessed over Rs 4 lakh crore of such credit this year. Agriculture is the only sector appears better equipped to absorb the lockdown shocks because supply lines of fertilisers and seeds etc have fared better than other goods,” said Abhishek Agrawal, an economist with Comtrade, a commodities firm.

The prediction of a normal 2020 June-to-September monsoon by the India Meteorological Department (IMD) has brought relief to farmers, as it will likely lessen the strain on the economy from widespread disruptions caused by the Covid-19. The monsoon rains are critical because nearly 60% of India’s net arable land lacks irrigation and half the population depends on agriculture for a livelihood.

With good rains, spending by rural consumers on manufactured items such as television sets and gold jewellery goes up, and boosts factory output. A deficient monsoon cuts rural consumption and also drives up inflation. A normal monsoon is key for robust agricultural output growth, which the government targets at around 4%.

Agrawal said since incomes of every class had been hurt, a “class of farmers may still be in need of cash”.

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  • ABOUT THE AUTHOR

    Zia Haq reports on public policy, economy and agriculture. Particularly interested in development economics and growth theories.

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