Centre weighs zero interest on crop loans repaid on time ahead of 2019 polls

The Narendra Modi government was weighing an interest waiver on crop loans for farmers who pay back on time, a step that would cost the exchequer an extra Rs 15,000 crore, according to sources. The move was part of efforts to address farm distress ahead of the 2019 general election.

Proposals under study

Besides the interest waiver, sources said there was a proposal to fully waive the premium on insurance for food crops and to lower the premium for horticultural crops. Several rounds of high-level meetings had been held in recent days to tackle problems farmers faced from poor prices for several crops despite bumper harvests. The push followed the BJP’s loss of Madhya Pradesh, Rajasthan and Chhattisgarh to the Congress in the recent state elections.

One option for immediate relief was to waive the 4 per cent interest paid by farmers who repay farm loans by the due date.

How the current scheme works

• Short-term farm loans up to Rs 3 lakh currently carry 7 per cent interest, with an extra incentive of 3 per cent for prompt repayment.
• The Centre spends around Rs 15,000 crore a year on interest subsidy, which is 2 per cent normally and 5 per cent where loans are repaid promptly.
• According to sources, waiving interest fully for prompt repayers could double that cost to Rs 30,000 crore.
• The government’s farm credit target for the current year is Rs 11 lakh crore; last year it extended Rs 11.69 lakh crore against a target of Rs 10 lakh crore.

Crop insurance

The PMFBY crop insurance scheme, launched in April 2016, covers crops from before sowing to after harvest against natural risks that cannot be prevented, with farmers paying premiums of 2 per cent on kharif, 1.5 per cent on rabi, and 5 per cent on horticultural and commercial crops.

What happened next

In the 2019 Lok Sabha election, held from 11 April to 19 May, the BJP won 303 of 543 seats.

See also: Bharatiya Janata Party · Election news

Originally published on 28 December 2018. Rewritten on 9 October 2026.

Share on Facebook

Tweet

Follow us