To attract more investment in farm sector, the Agriculture Ministry has proposed one per cent reduction in interest rates to 4 per cent for those farmers, who are prompt in repayment of loans they have availed.
At present, farmers get credit at a rate of 7 per cent. However, those who pay their dues on time get an incentive of two per cent and need to pay back at 5 per cent interest rate only.
In its budget wish-list, the ministry has recommended an additional subvention of one per cent in interest rate during the 2011-12 fiscal for farmers who are not defaulters, sources said.
To encourage farmers to invest more, the government has been offering a cut in interest rates to farmers on loans they have taken.
The ministry's proposal is in line with the suggestions made by the Working Group on Agriculture, constituted by Prime Minister Manmohan Singh.
The group is headed by Haryana Chief Minister Bhupinder Singh Hooda. The Hooda Committee had said: "Credit should be made available (to farmers) at not more than four per cent rate of interest."
Besides a cut in interest rates on farm loans, the ministry has proposed that banks should be asked to offer credit to more farmers. For the 2010-11 fiscal, the government has set a target for banks to lend Rs 3.75 lakh crore farm loans.
According to sources, the ministry has sought funds for construction of storage facilities and to launch new schemes to enhance production of millets, vegetables and palm cultivation.
The farm ministry has recommended a total budget of over Rs 20,000 crore (Rs 200 billion) for the 2011-12 fiscal. Last year, as much as Rs 17,254 crore (Rs 172.54 billion) was allocated and out of which 80 per cent of the funds has already been utilised.
