With uncertainty looming over the impact of potentially poor monsoon rainfall on kharif crops, the Union cabinet on Tuesday decided to extend the subsidy offered on interest rates to farmers for 2015-16 and increase the budget allocation for the so-called interest subvention scheme by more than Rs.5,000 crore.In doing so, the finance ministry seems to have dropped its plan to revamp the scheme for crop loans at least for now.Finance minister Arun Jaitley had allocated Rs.13,000 crore in the budget for this scheme in the current fiscal, higher than the Rs.9,476.71 crore set aside in last year’s budget (according to revised estimates for 2015-16).On Tuesday, the cabinet decided to increase the allocation for this scheme in this year to Rs.18,110 crore. Of this, Rs.15,778 crore will be used to subsidize loans given by state-run banks. The remaining amount will be used by National Bank for Agriculture and Rural Development to refinance loans given by regional rural banks and cooperative banks.Under the scheme, banks extend loans up to Rs.3 lakh to farmers at a concessional interest rate of 7%. The farmers get a further 3 percentage points discount for timely repayment, making the effective rate 4%.Looking to refurbish its image after the opposition accused the government of being anti-farmer—for initiating industry-friendly amendments to the land acquisition bill—the National Democratic Alliance government has taken a number of steps, including a hike in compensation for crop loss and a relaxation of the criteria for claiming such compensation.Although the original forecast by the India Meteorological Department was of a deficient rainfall this year, the situation has not been as dire as predicted. Rainfall in June was above normal, and though July rainfall has so far been below normal, it is showing signs of picking up.The cabinet also approved the continuation of the interest subvention scheme for banks for the first year of restructured loans so as to provide relief to farmers affected by natural calamities.The subvention scheme of loans at 7% will also cover small and marginal farmers having Kisan Credit Cards, for loans against warehouse receipts for a period of six months.The finance ministry was considering steps to improve the efficacy of the scheme for short-term crop loans as the scheme had failed to achieve the desired results despite high fund allocations.In a notification issued in April, the government had instructed state-run banks to continue with the scheme till 30 June, in the hope that it will be able to put the new scheme in place in that duration.Economists said the government’s decision to extend the interest subvention scheme are aimed at countering rural distress. “The National Democratic Alliance government has been looking at rationalizing subsidies. But given the fact that there is uncertainty on account of the monsoon and the resultant impact on the kharif harvest, the government must have decided to not take any chances. So far, the sowing pattern for the kharif crops is higher than last year,” said Madan Sabnavis, chief economist at CARE Ratings. “The interest subvention scheme has worked well. It has protected farmers from high interest rates as well as reduced the lending risk for banks given the risky nature of the loans,” he said.Banks have been told to lend Rs.8.5 trillion to the agriculture sector in the current fiscal year, against Rs.8 trillion a year ago.The cabinet on Tuesday also approved the setting up of a central agricultural university, at a cost of Rs.295 crore, in Samastipur district of Bihar, by converting the existing state university into a national-level institution. The university will have a network of colleges, research institutes and Krishi Vigyan Kendras, and will help enhance agricultural productivity in the eastern region of the country.In another decision, the cabinet committee on economic affairs approved unrestricted bulk exports of rice bran oil and organic edible oils. Presently, rice bran oil has limited demand in India and exports are expected to help small rice mills. Allowing exports of organic edible oils should also encourage more investments in the high-value produce.

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