The finance ministry has advised banks to reduce interest rates on agricultural credit and ensure that farmers are able to borrow funds at single-digit interest rates.

At a meeting with bank chiefs earlier this week, officials from the banking division in the finance ministry tried to impress upon them to extend credit below the prime lending rate of 11-11.5 per cent, a bank executive who attended the meeting said.

Finance ministry officials confirmed the development and said the government was trying to convince banks to cut interest rates on farm credit.

"We are working on the plan, and an announcement will be made soon," a senior government official said.

Bankers said the move was aimed at wooing farmers to vote for the Bharatiya Janata Party in the forthcoming Assembly elections.

Recently, Agriculture Minister Rajnath Singh had taken up the matter with Finance Minister Jaswant Singh, and also stressed the issue at a meeting of senior party leaders in Mumbai.

Announcing the Budget for 2003-04, Jaswant Singh had said agriculture and the small-scale industry had not benefited from the drop in interest rates.

He had asked the Indian Banks' Association to advise its members to extend credit to the two sectors at 2 per cent below the PLR.

The association has issued the necessary instructions to banks.

Only last week, Minister of State for Finance A V Adsul asked public sector banks to comply with Reserve Bank of India guidelines prescribing 18 per cent credit to the agricultural sector.

Over half-a-dozen public sector banks did not meet the requirement in the last financial year.

With elections in five states round the corner and general elections due next year, Rajnath Singh has been insisting on lower interest rates for the government to project a farmer-friendly image.

Jaswant Singh is learnt to have accepted the agriculture minister's request, aimed at pre-empting the Opposition's move to mobilise farmers against the government.

What appears to have prompted the finance ministry to take up the issue is the hectic campaigning by former agriculture minister Ajit Singh, who initially raised objections over the high interest rates.

On June 13, 2003, bank credit amounted to Rs 730,130 crore (Rs 7,301.30 billion), with food credit extended by banks estimated at Rs 50,565 crore (Rs 505.65 billion).

While bank credit had grown 13.4 per cent year-on-year, food credit grew at a slower pace.