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Labourers remove dried grass from a rice field on the outskirts of Ahmedabad, India, August 30, 2016. Picture taken August 30, 2016 (representational image).Reuters file

Just before the general elections of 2019, the Modi government is leaving no stone unturned to lure the farmers. In the latest development, the government is putting in efforts to give a major push to expand formal sources of credit for the farmers across the country. English daily, Hindustan Times has reported that center has directed the banks to issue Kisan Credit Cards to farmers within two weeks of applying. Moreover, with a short term credit limit of Rs 3 lakh, all the additional fees and related charges including Goods and Services Tax and inspection fees would be waived for the farmers.

Interestingly, Kisan credit cards were introduced in 1998 with the objective of providing formal credit to farmers -- including small farmers -- for cultivation, consumption and investment needs. The figure shows that although the credit flow to the rural areas has increased tenfold since the start of the millennium, around 40 percent of the loan requirement is still being fulfilled by the informal sources of lending -- mainly commission agents and private moneylenders. These money lenders often charge exorbitant interest rates. The credit limit or loan amount under Kisan Credit Cards are formulated by the banks in lines with the Reserve Bank of India's "master circular" dated July 4, 2018.

For the first year, the short-term credit limit decided by the so-called "scale of finance" for a particular crop is the total cultivation expenses multiplied by the extent of area cultivated. The rate is decided by a district-level technical committee. In this credit limit, 10% of limit towards post-harvest and household consumption requirements are added, along with 20% of the limit towards repairs and maintenance of farm assets and crop insurance. According to the data available with the Reserve bank of India, nearly 45 million cards with an outstanding of Rs 2.3 lakh crore were in operation in the year 2017-18.

Farmers harvesting their paddy
Farmers harvesting their paddyWork Bank

Prof K Mani of the Tamil Nadu Agricultural University said, "Small and marginal farmers often tend to complain that up to Rs 1500 are often deducted or has to be repaid as upfront charges on disbursal of a Kisan Credit Card. This move will make formal credit through such credit cards attractive." Notably, Former RBI governor Raghuram Rajan had called for a thorough examination of potential risk related to Kisan credit cards.