These decisions were approved by the EGoM on drought headed by Agriculture Minister Sharad Pawar, they said.
"In the meeting, various proposals were discussed. It approved slashing of interest rate on rescheduled crop loans of drought-hit farmers to 7 per cent from 12 per cent," a source privy to the development said.
The Agriculture Ministry had proposed interest subvention on such crop loans for at least five years, but the EGoM approved it for one year. The ministerial panel suggested that the ministry take the proposal to the Cabinet Committee on Economic Affairs for approval, the sources said.
Another proposal on raising number of work days under the Mahatama Gandhi National Rural Employment Guarantee (MNREGA) was also approved for implementation in drought-affected states for one year, sources added.
"The number of guaranteed work under the MGNREGA has been increased to 150 days from 100 days," the source said.
Four states -- Karnataka, Gujarat, Maharashtra and Rajasthan -- have declared drought in more than 390 taluks. Monsoon deficiency in the country has come down to 9 per cent so far.
Finance Minister P Chidambaram, Petroleum and Natural Gas Minister S Jaipal Reddy and Urban Development Minister Kamal Nath, are also members of the EGoM. They were, however, not present in the meeting.
During agrarian crisis like drought, crop loans automatically get converted into term loans for a longer period of three years but at a higher interest rate of 12 per cent. Now, the EGoM has decided to slash rate on rescheduled loans to 7 per cent from 12 per cent for one year in drought-hit areas.
Under MGNREGA scheme, the government assures 100 days of work every year to each household in rural areas.
Generally, people avail of the benefit under the scheme during the off-season for agriculture. The government has provided Rs 33,000 crore to implement the scheme this fiscal, as against Rs 31,000 crore (Rs 310 billion) in 2011-12.
In the last EGoM, the government had announced mitigation measures such as diesel subsidy, enhanced ceiling on subsidies on seeds and channelised funds under various schemes to boost drinking water and fodder supply for livestock.
The four states have sought relief funds to mitigate the impact of drought and central teams have been constituted to visit these states to assess the situation.
Poor monsoon has affected sowing of most Kharif (summer) crops like rice, pulses, oilseeds and coarse cereals.