Government could raise agricultural credit target to around Rs 18 trillion in next budget

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In an effort to boost the agricultural sector, the government is likely to raise the agricultural credit target to around Rs 18 lakh crore in the 2022-2023 budget to be presented on February 1, according to sources.

For the current fiscal year, the government has set a credit target of Rs 16.5 lakh crore.

The government has increased the credit target for the agricultural sector every year and this time too the target is likely to be increased to Rs 18-18.5 lakh crore for 2022-2023, the sources said.

The number will be frozen when finalizing the budget figure in the last week of the month, the sources said.

The government sets annual agricultural credits, including crop loan targets for the banking sector. Agricultural credit flows have increased steadily over the years, exceeding the target set for each fiscal year. For example, a loan worth Rs 11.68 lakh crore was granted to farmers in 2017-2018, much higher than the target of Rs 10 lakh crore set for that year.

Likewise, crop loans worth Rs 10.66 lakh crore were disbursed during fiscal year 2016-17, above the credit target of Rs 9 lakh crore.

Credit is an essential input for obtaining higher agricultural production. Institutional credit will also help dissociate farmers from non-institutional sources where they are forced to borrow at usurious interest rates, the sources added.

Normally, agricultural loans carry an interest rate of nine percent. However, the government provided an interest subsidy to make available short-term crop loans at an affordable rate and help increase agricultural production.

The government grants a two percent interest subsidy to ensure that farmers obtain short-term agricultural loans of up to Rs 3 lakh at an effective rate of seven percent per year.

An additional three percent incentive is given to farmers for prompt, on-time loan repayment, bringing the effective interest rate to four percent.

To improve the coverage of small farmers and marginal farmers in the formal credit system, the RBI decided to raise the limit on unsecured agricultural loans from Rs 1 lakh to Rs 1.6 lakh.

The interest subsidy is granted to public sector banks (PSBs), private lenders, cooperative banks and rural regional banks (RRBs) on the use of their own funds and to Nabard for the refinancing of RRBs and banks cooperatives.

(Only the title and image of this report may have been reworked by Business Standard staff; the rest of the content is automatically generated from a syndicated feed.)

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