Policy Update
Ishita Deb
The Origins
In 2006-2007, the then Finance Minister Palaniappan Chidambaram launched the centrally sponsored scheme of Interest Subvention Scheme in the Kharif season. The Modified Interest Subvention Scheme (MISS) focuses on providing short-term agricultural loans via Kisan Credit Card (KCC) in order to enhance the working capital requirements of farmers. The targeted institutions under this scheme are Scheduled Commercial Banks (SCBs), Small Finance Banks, Regional Rural Banks (RRBs), Cooperatives and Computerised PACS (Payment Clearing and Settlement) claims ceded with SCBs.
All the claims are settled through two major institutions namely, the Reserve Bank of India (RBI) and the National Bank of Agriculture and Rural Development (NABARD).
Functioning of the Scheme
- To fulfill the working capital needs of the farmers, on loans up to Rs 3 lakh with a benchmark interest rate of 9%, a subvention of 2% (since 2010-11) is given on the principal amount, bringing the total effective rate down to 7%.
- If the repayments are made in a timely manner, an additional subvention of 3% is provided bringing the effective rate down to 4%.
- The upper limit of the additional subvention has evolved over the years. It used to be 1% till 2009-10, was set at 2% for the year 2010-11 and from 2010-11 onwards it was set at 3%.
- The RBI circular highlighted that the 2% subvention is being brought down to 1.5% for the FY 2022-23, 2023-24 and 2024-25.
- In 2023-24, the allocation of funds for the agriculture credit target was done at Rs. 23 lakh crores. Out of this, approximately, Rs 23,000 crore was for MISS, while the actual funds used were about Rs 18,500 crore. In the interim budget of 2024-25 which was presented on February 1, 2024, an allocation of Rs. 22,600 crore.
Additional Features of the Policy
If hit with natural calamities, farmers can get an additional subvention of 2% for the first year of restructuring loans and then the normal rate of interest applies to them from the second year. However, in case it is a severe calamity the subvention is provided for 3 years and can be for a maximum of 5 years. There is an additional subvention of 3% for farmers who make a timely repayment.
To tackle the issue of storage and abate the distress sales for Small and Medium scale farmers, the subvention is extended further for up to 6 months from the harvest of the crop. This is claimed against the Negotiable Warehouse receipts accredited by the Warehousing Development Regulatory Authority.
Under KCC issued to Animal, Husbandry and Fisheries, the banks and farmers get a subvention of 2% and 3% respectively. The amount of the short-term loans should be up to an amount of Rs 2 lakh given that the benchmark rate of interest is 7% per annum. If the farmer grows crops and is also involved in animal husbandry then they are eligible for the subvention given the upper limit of the loan is Rs 3 lakh per annum. The priority will be given to crop loans first and then the residual amount will be allocated to allied activities.
The scheme also calls for mandatory Aadhar card linkage to ensure smooth and efficient processing of the scheme.
The Way Forward
On July 10th, the Ministry of Agriculture and Farmer’s Welfare proposed to increase the upper limit of the principal loan amount to Rs 5 lakh. Recently, the UP Agriculture Minister Surya Pratap met the Agriculture Union Minister Shivraj Singh Chouhan to discuss the same issue. For monitoring and reporting, the banks have to report data of the farmer-beneficiaries through the Kisan Rin Portal (KRP) to settle the audited claims of 2024-25. They have to upload the data by June 30, 2025, after the claims are verified by the statutory auditors.
The computerised PACS claims ceded with SCBs have to be submitted separately which includes the claims of interest rate subvention and the timely repayments excluding any NABARD finance.
The Minister of State for Finance, Pankaj Chaudhary presented data in the Lok Sabha recently to prove the increase in the ground-level credit access in rural areas. The credit access has increased from Rs. 7.3 lakh crores in 2014 to Rs. 25.46 lakh crore in 2024.
Moreover, other pivotal schemes like the Pradhan Mantri Jan Dhan Yojana have also seen a rise in around 52 crore new bank accounts to promote financial inclusion in the nation. With all such policies together, India is surely on the path to ensure that today’s farmers are uplifted and supported to face competition from the international markets. These policies contribute to their success, prosperity, and growth and open new doors of opportunities for them to strive for more innovative and efficient approaches to production.
References
About the Contributor– Ishita Deb is a research intern at IMPRI. She’s currently pursuing her MA in economics from Boston University, USA. She completed her BA in economics honours from Lady Shri Ram College for Women, Delhi University. Her areas of research interest include macroeconomics and international economics.
Acknowledgement– I would like to extend my gratitude to Dr. Arjun Kumar for his constant support and guidance. Moreover, I would like to acknowledge the assistance of Ms Aasthaba Jadeja in the publication process and Dipannita Saha and Geetam Acharya in reviewing my article.
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