Tamil Nadu CM urges Modi to consult states on crop loan subsidy scheme
O. Panneerselvam wrote a letter to the Prime Minister, urging him not to alter a nine-year-old central crop loan subsidy scheme without consulting states
Chennai: Tamil Nadu chief minister O. Panneerselvam on Wednesday wrote to Prime Minister Narendra Modi, urging him not to alter a nine-year-old central crop loan subsidy scheme without consulting states.
Any such proposal should be discussed with chief ministers of all states in the National Development Council or the governing council of the NITI Aayog, Panneerselvam wrote in his letter to Modi, adding any decision should be taken only with the consent and concurrence of states.
Under the so-called interest subvention scheme, banks extend short-term crop loans at an interest rate of 7%, against the regular 10-11%. Those who repay on time get an additional 3 percentage points discount, making the effective rate just 4%. The burden of difference in interest is borne by the central government. Banks stopped advancing these cheap loans from 1 April since finance minister Arun Jaitley had not specifically mentioned the scheme in his 2015-16 budget speech, even though he had made an allocation for the same. Following this, the finance ministry and the Reserve Bank of India (RBI) clarified that the scheme is being modified, and will continue till 30 June in its current form.
Panneerselvam wrote that he had learnt the central government was planning to let banks charge normal priority lending rates for farm loans, and introduce direct cash transfers in place of paying the subsidy through banks.
Any reduction in the concessionality of farm loans will be a retrograde measure, he said, especially in the backdrop of recent crop losses from unseasonal rains and gloomy monsoon forecasts.
Expecting farmers to pay a higher interest rate and then getting it reimbursed through a direct benefit transfer (DBT) would be ill-advised, Pannerselvam wrote, as it would force the farmers to find cash resources to pay the higher interest dues first. DBT-based reimbursement is not an appropriate model for farm credit, said Panneerselvam. All loanee farmers have bank accounts and the interest subvention reaches individual farmers only through the banking network. Hence, DBT adds no value but introduces a needless layer of complexity to the transaction, he added.
Moreover, limiting the scheme till 30 June will not help farmers in Tamil Nadu, Panneerselvam wrote, since the state’s main cropping season starts in August.
Panneerselvam also drew attention to a Tamil Nadu government scheme in which those farmers who seek crop loans through agricultural co-operative societies get an additional interest subsidy of 4 percentage points, making crop loans interest-free for them.
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