Farmers will continue to get short-term crop loans up to Rs 3 lakh at an interest rate of 7 percent, and prompt repayers at 4 per cent as the government on Tuesday approved extending a scheme with Rs 20,339 crore funds to make available cheaper loans to the farming community.

That apart, farmers will get loans for post-harvest storage of their produce at a subsidized interest rate of 7 per cent for six months.

To provide relief to farmers affected by natural calamities, the government has decided to give 2 per cent interest subsidy for the first year on the restructured amount.

These decisions were taken at the Cabinet meeting on Wednesday, headed by Prime Minister Narendra Modi.

"The Cabinet has approved the Interest Subvention Scheme (ISS) for farmers for 2017-18... The government has earmarked a sum of Rs 20,339 crore for this purpose," an official statement said.

Stating that credit is a critical input in achieving higher farm output, the government said the institutional credit will help in delinking the farmers from non- institutional sources of credit where they are compelled to borrow at usurious rates of interest.

Since the crop insurance under Pradhan Mantri Fasal Bima Yojana (PMFBY) is linked to availing of crop loans, the farmers stand to benefit from both farmer-oriented initiatives of the government.

The interest subvention scheme, which has been running since 2006-07, will continue for the current fiscal and will be implemented by the National Bank for Agriculture and Rural Development (Nabard) and the Reserve Bank.

Normally, farm loan attracts an interest rate of 9 per cent. But the government has been providing interest subvention to make available short-term farm credit at an affordable rate and help boost farm output.

Under the scheme, the government will continue to provide 2 per cent interest subsidy to ensure farmers get short-term farm loan of up to Rs 3 lakh at an effective rate of 7 per cent for 2017-18.

Additional, 3 per cent interest subsidy will be given to those who repay on time. Only 4 per cent interest will be charged from prompt repayers, the statement said.

As an interim measure, the Reserve Bank last month had asked the banks to continue giving the discount on interest on short-term crop loans in the current fiscal.

The interest subvention will be given to public sector banks (PSBs), private lenders, cooperative banks and regional rural banks (RRBs) on the use of own funds and to Nabard for refinance for RRBs and cooperative banks.

The Cabinet decision to continue the interest subvention comes at a time when farmers are in agitation mode in several parts of the country, especially in the central state of Madhya Pradesh, demanding loan waiver. The northern state of Uttar Pradesh and the west-central Maharashtra state have already announced such waiver.

The government said all short-term crop loan accounts will be Aadhaar-linked from the current year.

For 2017-18, the target of agriculture credit has been raised to Rs 10 lakh crore, from Rs 9 lakh crore in 2016-17.

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