Arguing that it has distorted the agricultural credit system, Deepak Mohanty-led panel calls for ploughing the subsidy amount into a tech-aided universal insurance scheme for marginal and small farmers for all crops
Mumbai : A committee set up by the Reserve Bank of India has suggested that interest subvention schemes for agricultural loans should be phased out, with the interest subsidy being ploughed back as an affordable universal crop insurance scheme.
“The (interest subvention) scheme is for short-term crop loans, and as a result it discriminates against long-term loans and thereby, does not incentivise long-term capital formation in agriculture, which is essential to boost productivity,” said the report of the committee on the medium-term path on financial inclusion.
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The committee, chaired by RBI Executive Director Deepak Mohanty, was constituted by the central bank after Prime Minister Narendra Modi urged the RBI to take the lead in encouraging financial institutions to set concrete targets for financial inclusion over the coming years.
The committee also argued that subsidised credit did not always flow to the actual cultivator and that it increased the “probability of misuse”.
As per the government’s interest subvention scheme, crop loans of up to 300,000 rupees attract a rate of interest which is 200 basis points lower. A further 300 bps incentive is given for prompt repayment of loans.
Further on the insurance front, the committee has recommended that insurance should be made mandatory for all agricultural loans, and a universal crop insurance scheme covering all crops should be introduced, starting with small and marginal farmers with a monetary ceiling.
