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Last Updated : Jun 20, 2019 01:24 PM IST | Source: Moneycontrol.com

Budget 2019 may announce interest-free short-term farm loans of upto Rs 1 lakh

In its manifesto released ahead of the recently-concluded Lok Sabha elections, the BJP had vowed a raft of measures for the agriculture sector

Representative image
Representative image

In a bid to deal with agrarian distress and boost the farm sector, Finance Minister Nirmala Sitharaman's budget 2019-20 might announce interest-free short-term loans to farmers, a senior government official told Moneycontrol.

“This Budget ( to be presented in Parliament on July 5, 2019) may allow farmers to seek short-term new agriculture loans up to Rs 1 lakh,” the official said.

In its manifesto released ahead of the recently-concluded Lok Sabha elections, the BJP had vowed a raft of measures for the agriculture sector, with pointed attention to raising income of farmers, an important electoral constituency.

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A decision on short-term interest-free loans to farmers was among the poll promises that the BJP had made.

“We will provide short-term new agriculture loans up to Rs. 1 lakh at a zero percent interest rate for 1-5 years on the condition of prompt repayment of the principal amount,” the BJP, which retained power with thumping majority winning 303 of 543 seats in the Lok Sabha, had said in its manifesto.

The agriculture ministry has also sought for more funds from the finance ministry in this budget to set up necessary logistics for the agricultural sector.

“The ministry has sought higher funds for allied sectors such as horticulture, animal husbandry, fisheries. It has also asked to incentivise agricultural exports,” the official said.

On May 31, 2019, a day after taking oath, Prime Minister Narendra Modi chaired a cabinet meeting that approved the a proposal to expand the PM-Kisaan—a flagship scheme to transfer Rs 6,000 a year to peasants—to all farmers, including landless as well as relatively richer farmers, and not just to those owning up to two hectares of land.

The Cabinet also approved a proposal to provide a minimum pension cover of Rs 3,000 a month to an estimated 5 crore small and medium farmers under a newly launched contributory pension scheme.

The decision to universalise PM-Kisaan and launch a pension scheme for farmers is seen as an attempt to demonstrate the government’s intent to walk the talk on offering a structural solution to a persistent farm economy challenge that will only worsen as landholdings shrink.

Under the PM-Kisaan scheme, which was announced in February in the Interim Budget, about 12 crore farmers owing up to two hectares of land are currently receiving Rs 6,000 a year directly into their bank accounts in three equal installments.  The revised and expanded scheme will make 14.5 crore eligible for the handout.

Over the last two years, farmers have been protesting in several states, demanding better prices and debt write-offs. Low retail prices may be heartening to consumers, but persistently low food prices, have meant that farmers’ income have remained flat.

India’s long slowdown in food prices may well be symptomatic of a problem of abundance. Low growth in farmers’ income has been attributed to the BJP’s loss in the Assembly elections of December 2018, particularly in Madhya Pradesh.

Procurement is taking place at higher prices only for fourteen (14) cereals by government agencies such as the Food Corporation of India (FCI). Vegetables, potatoes and onions however, are not procured by government agencies. That's why vegetable prices have crashed in wake of a plentiful harvest.

The new government has to quickly move on policies to raise farm incomes and also ensuring that retail inflation remains within the central bank’s tolerable level of 4 percent.

Low retail prices may be heartening to consumers, but persistently low food prices, have meant that farmers’ income have remained flat.

India’s long slowdown in food prices – “disinflation” in economists’ jargon – may well be symptomatic of a problem of abundance.

The current price crash is partly due to a bumper winter-sown crop that flooded mandis.

With few buyers, the glut forced farmers to dump products at throwaway prices to clear up a piling mount of vegetables.

This is showing up in food inflation, a proxy to measure how costly or cheaper commonly consumed items have become on an annualised basis, which has moderated sharply.

Vegetables, potatoes and onions do not attract minimum support price (MSP)—where the government purchases crops from the farmers at a certain assured price.

High inflation hurts people’s buying power, while low levels can indicate poor demand and weak economic activity. Currently, it is the latter that seems to be playing out in the rural economy.

In July 2018, the Centre had also announced a sharp rise in minimum support prices (MSPs) for 14 summer-sown kharif crops. The government had set the MSP at a minimum of 1.5 times the cost of cultivation. This proposal was made in the budget for 2018-19, based on the calculations made by the Commission on Agricultural Costs and Prices.
First Published on Jun 20, 2019 01:24 pm
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