Context:

The Centre is considering a proposal to increase the upper limit of short-term crop loans under the Modified Interest Subvention Scheme (MISS) from Rs 3 lakh to Rs 5 lakh.

More on the News

• The proposal to revise the modified interest subvention scheme aims to allow farmers to borrow more at a concessional rate and is under review by the Ministry of Agriculture and Farmers’ Welfare.

State Governments' Demand

• Recently, the State governments, led by Uttar Pradesh, have been advocating for this increase to address rising input costs and potentially support larger farms.
• State governments have been advocating for an increase in the ceiling, allowing farmers to avail of Kisan Credit Card loans at a concessional annual interest rate of 7%, which reduces to 4% with prompt and timely repayment. 

About the Interest Subvention Scheme

• The Interest Subvention Scheme, launched in 2006-07 (starting Kharif) and running till 2024-25, provides short-term loans to farmers at subsidized rates through various banks and financial institutions.
• Administering Bodies: The Scheme is implemented by the National Bank for Agriculture and Rural Development (NABARD) and the Reserve Bank of India (RBI).

Current Terms under MISS: Under the Modified Interest Subvention Scheme, farmers involved in agriculture and allied activities can currently obtain Kisan Credit Card loans up to Rs 3 lakh at a benchmark rate of 9%. 

• The Centre provides a 2% interest subvention, reducing the effective interest rate to 7%. 
• An additional 3% concession is offered for prompt and timely repayment, further reducing the rate to 4% per year.

The upper limit of Rs 3 lakh has remained unchanged since 2006-07. The proposed increase to Rs 5 lakh would potentially allow farmers to access more funds at these subsidized rates.

Benefits of the Scheme:

• Reduced Borrowing Costs: The scheme lowers crop loan costs, making essential supplies more affordable.
• Encourages Timely Repayment: Additional subvention incentivizes prompt repayment and responsible financial management.
• Post-Harvest Loan Benefits: The Scheme benefits small and marginal farmers with Kisan Credit Cards for post-harvest loans (up to six months post-harvest) to prevent distress sales of their produce.

The Kishan Credit Card (KCC) Scheme was introduced in 1998 to provide adequate and timely credit to the farmers for their agricultural operations.

Financial Year 2023-24 Targets and Allocations

• For the financial year 2023-24, the Centre set an agriculture credit target of Rs 20 lakh crore, focusing on animal husbandry, dairy, and fisheries. 
• Initially, Rs 23,000 crore was allocated for interest subvention under MISS, but this was later revised to Rs 18,500 crore.

Potential Challenges:

• Increased Financial Burden: Raising the loan limit could put a strain on government finances.
• Misuse of Funds: There might be a risk of some farmers misusing the larger loans, potentially increasing repayment defaults.