New Delhi: In another boost for farmers ahead of Lok Sabha elections, the Reserve Bank of India (RBI) Thursday increased the cap on collateral-free agricultural loans to Rs 1.6 lakh from Rs 1 lakh.
The RBI move is likely to compliment Modi government’s budget proposals to provide an income support to farmers.
The decision will benefit all farmers, including tenanted farmers, who were left out from the income support scheme announced in the budget.
“This limit of Rs 1 lakh was fixed in the year 2010. Keeping in view the overall inflation and rise in agriculture input costs since then, it has been decided to raise the limit for collateral-free agriculture loans from Rs 1 lakh to Rs 1.6 lakh,” the central bank said in a statement on developmental and regulatory policies.
“This will enhance coverage of small and marginal farmers in the formal credit system,” said RBI, adding that the circular will be issued shortly.
Along with the income support scheme, the move should improve the availability of funds for the farmers for input costs.
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Budget proposals
In the interim budget for 2019-20, Finance Minister Piyush Goyal announced an income support scheme for farmers amounting to Rs 6,000 annually to alleviate rural distress.
The Pradhan Mantri Kisan Samman Nidhi, funded entirely by the central government, will benefit small and marginal farmers with holdings up to 2 hectare who will get the direct income support in three equal installments.
Around 12 crore farmer families will benefit from the scheme which will be implemented retrospectively from 1 December 2018, Goyal had announced.
However, the scheme has been criticised by the opposition for its low income support and also for its exclusions as it leaves out tenanted farmers.
RBI’s decision will benefit even the tenanted farmers as those who do share cropping can also avail of these loans, a banker with a state-run bank said on condition of anonymity.
The income support was Modi government’s final attempt to appease farmers, a politically crucial voter base, ahead of the general elections due later this year in April-May.
The central government’s decision to provide sops to farmers followed its electoral defeat in the three states of Chhattisgarh, Madhya Pradesh and Rajasthan. Farmers’ ire was pegged as one of the major reasons for the defeat of the ruling Bharatiya Janata Party governments in all these states.
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Agriculture credit
On Thursday, the RBI also announced constitution of an internal working group to review agriculture credit.
“Agricultural credit growth has been significant over the years. In spite of this, there remain issues relating to agricultural credit such as regional disparity, extent of coverage, etc,” said RBI.
“There is also the issue of deepening long-term agricultural credit for capital formation,” added the central bank.