In a shot in the arm for the farm sector and farmers, the Union Cabinet chaired by Prime Minister Narendra Modi, on August 17 has restored the interest subvention scheme on short-term agriculture loans.

Short-term crop loans up to Rs 3 lakh will receive a subvention of 1.5 percent, which will be provided to lending institutions for the financial year 2022-23 to 2024-25.

This increase in interest subvention support requires additional budgetary provisions of Rs 34,856 crore for the period of 2022-23 to 2024-25 under the scheme.

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Farmers will continue to avail of short-term agriculture credit at an interest rate of 4 percent per annum while repaying the loan in time.

"Increase in interest subvention will ensure the sustainability of credit flow in the agriculture sector as well as ensure financial health and viability of the lending institutions especially regional rural banks and cooperative banks, ensuring adequate agriculture credit in the rural economy," the government said in a statement.

To ensure that the farmers have to pay a minimal interest rate to the bank, the government of India introduced Interest Subvention Scheme (ISS), now renamed as Modified Interest Subvention Scheme (MISS), to provide short-term credit to farmers at subsidised interest rates.

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Under this scheme, a short-term agriculture loan up to Rs 3 lakh is available to farmers engaged in agriculture and other allied activities, including animal husbandry, dairying, poultry, fisheries, etc. at the rate of 7 percent per annum.

An additional 3 percent subvention (prompt repayment incentive) is also given to the farmers for prompt and timely repayment of loans. Therefore, if a farmer repays his loan on time, he gets credit at the rate of 4 percent per annum.

For enabling this facility for the farmers, the government of India provides interest subvention to the financial institutions offering this scheme. This support is 100 percent funded by the Centre, it is also the second largest scheme of DA&FW as per the Budget outlay and coverage of beneficiaries.

Keeping in view the changing economic scenario, especially the increase in the interest rate and lending rates for the financial institutions, especially cooperative banks and regional rural banks, the government has reviewed the rate of interest subvention provided to these financial institutions.

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Recently, under the Aatmanirbhar Bharat campaign, over 3.13 crore farmers have been issued a new Kisan Credit Card (KCC) against the target of 2.5 crore.

Special initiatives such as the KCC Saturation Drive for farmers enrolled under the PM-KISAN scheme have also simplified the process and documentation involved in getting the KCC sanctioned.

(Edited by : Shoma Bhattacharjee)