Govt. gears up agro and manufacturing economy with Rs. 4.5 b annual interest subsidy this week

By A.M.P.M.B. Atapattu, 

Director General, Department of Development Finance, Treasury

Economic growth in Sri Lanka, which was on par with Japan and was far better than the economies of other countries in the region when the island gained independence, today stands below the economies of all these countries. 

Finance Minister Ravi Karunanayake said that the main reason for this downward trend was our mindset and the attitudes towards economic relations with the international community. The Finance Minister stated this at a ceremony held to welcome him after he returned to the island with the Best Finance Minister for Asia Pacific Award which he received from prestigious London-based international financial magazine The Banker. The ceremony was held at the Ministry of Finance.

According to Walt Rostow’s five-stage economic development module, a country should pass five phases in its economy to reach the status of a developed nation with mass manufacturing. Accordingly, an economy with a traditional society depends on an agricultural economy. Labour productivity is very low in such an economy where more subsidies are sought and consumption is high. In such cases, a subsidised economy with significant welfare is created.

Sri Lanka was second only to Japan in the 1950s and it developed a dependent mindset by giving economic welfare and subsidies, thereby generating a dependent labour force in the country. This situation did not help in any way to push the economy toward a manufacturing economy based on export.

Out of the current population of more than 20 million, 1.5 million are public workers. This means one out of 15 citizens is a government servant. There are 500,000 pensioners too. In addition, there are various types of beneficiaries who enjoy different kinds of Government welfare and subsidies. 

Accordingly, Rs. 403 billion has been allocated in 2017 for various public welfare schemes and subsidies such as Samurdhi, payments for senior citizens and so on.

The 2017 Budget, with the blessing of the President and Prime Minister, has made a plan to transform the country into a manufacturing economy where an agricultural economy will be made a commercialised venture with the introduction of a mechanised system. Facilities have been made to provide bank loans starting from Rs. 200,000 up to a maximum of Rs. 750 million through eight loan schemes under the new credit proposals of the Government. The Government is going to bear the cost of the interest for these loans up to Rs. 4,500 million annually. One of the main purposes of this project is to develop the agro industry while promoting the manufacturing industry as well.

This is where it is expected to reach the second concept of the pre- takeoff condition of the economy. Finance Minister Karunanayake in Budget 2017 proposed the following programs under eight loan schemes:

 

• Develop the country’s industrial sector by providing financial facilities to small and medium-size entrepreneurs who have already been identified by the Government as the rural economic development forces.
• To provide relief to farmers who are engaged in small dependent agriculture.
• Modernisation of large-scale commercial level agricultural firms, paddy mills and improve their throughput.
• To assist low income group families to refurbish their houses or complete their half-built houses.
• As a solution to the looming energy crisis in the country, to assist households to install domestic solar power generating units.
• To encourage school van operators to upgrade their mode of transport to 32-seater buses, thereby improving the school van service.
• To provide relief for registered journalists who are performing their duties amid challenging working conditions to buy equipment.
• To create15,000 self-employed people with freezers to widen the distribution network to enable all consumers to buy quality products made of chicken at reasonable prices.

The implementation of  loan schemes for the above eight sectors will be launched under the patronage of President Maithripala Sirisena with the participation of Prime Minister Ranil Wickremesinghe at the invitation of Finance Minister Karunanayake during the first week of April.

This program, approved by the Cabinet of Ministers and aimed at providing assistance to all sectors of the economy, will improve productivity, generate employment, upgrade the living standards of the people, strengthen farmers and include the people in generating solar power thus enabling the transmission of additional power to the national grid.

The Government will bear the cost of interest for these loans from 25%-100% depending on the nature of the loan scheme at an annual cost of Rs. 4,500 million.

The new loan schemes have been titled Ran Aswenna, Govi Navoda, Diri Saviya, Jaya Isura, Riya Shakti, Sonduru Piyasa, Mehesara and Rivi balaya.

Ran Aswenna loan scheme

This loan scheme will be implemented with the aim of increasing productivity and commercialising the agricultural industry. Fifty percent of the loan interest is borne by the Government. Rs. 925 million has been allocated to provide interest subsidy.

Loans up to a maximum of Rs.250 million at a 50% interest subsidy will be provided to farmers, farmer associations, agricultural processing institutions, rice millers, poultry farmers, ornamental fish breeders, ornamental flower growers and private entrepreneurs engaged in a forward trade agreement in the agricultural sector.

Farmers engaged in the five main agro crops of potatoes, big onion, maize, soya and dried chillies will benefit immensely, making it possible for them to gain self-sufficiency.

The entrepreneurs dealing with the forward trade agreement will be required to collaborate with the maximum number of outgrowers and to supply them with quality seeds, agricultural know-how and machinery to prepare farmlands of small farmers to increase their productivity and profit.

Small farmers will be given an opportunity to use a smartphone with a special app enabling them to access free extension services such as identifying diseases in their cultivation.

Govi Navoda loan scheme

Small farmers and farmer organisations will be provided with up to Rs. 500,000 to mechanise their farming activities. Seventy-five percent of the loan interest will be borne by the Government. Farmers will be able to build poly tunnels and buy small machinery. Rs. 50 million has been allocated for this purpose.

Diri Saviya loan scheme

This has aimed to create 15,000 self-employed individuals or small-time poultry product sellers throughout the country and 15,000 freezers will be provided to them through large-scale entrepreneurs. This will also help consumers to buy quality chicken. The sellers who purchase deep freezers will be provided chicken and eggs by large-scale entrepreneurs. Rs. 75 million has been allocated to provide interest-free loans under this scheme.

Jaya Isura loan scheme

Loans will be provided under a concessionary interest in this scheme to empower small and medium enterprises.

Under the first category of this scheme, loans with a 50% concessionary interest rate will be provided up to Rs. 100 million for enterprises which have an annual turnover between Rs. 25 million and Rs.250 million with a staff of 50.

In addition, loans up to Rs. 400 million, with a 25% concessionary interest rate, will be provided to enterprises which have an annual turnover between Rs. 250 million to Rs. 750 million and have less than 300 employees. Those engaged in the light engineering, fisheries and agricultural sectors as well as the handloom and printing industries will benefit.

Riya Shakti loan scheme

Registered school van service providers will be able to replace existing vans with buses with a minimum seating capacity of 28. This loan up to Rs. 40 million will be given under a 75 % interest subsidy which will have to be repaid within five years. A GPS facility should be installed on these buses and this will help parents to properly monitor the movement of their children.

Sonduru Piyasa loan scheme

Low income group families who cannot afford to build their own houses and others who cannot afford to renovate or refurbish existing houses will receive a loan up to a maximum of Rs. 200,000 at a 50% concessionary interest. Rs. 1,000 million has been allocated to benefit families who are living throughout the island in houses below 750 square feet in size.

Madya Aruna loan scheme

Interest-free loans up to a maximum limit of Rs. 300,000 will be provided to journalists who are providing an important service to society. This will be granted to registered journalists to enable them to buy necessary equipment. In addition, loans will also be provided up to maximum limit of Rs. 150,000 with 50% concessionary interest to enable journalists to upgrade their existing equipment or repair it when necessary. There are over 7,000 journalists registered at the Government Information Department.

Rivibala Savi loan scheme

Under this scheme, households paying a monthly electricity bill less than Rs. 4000 will be provided with loans up to a maximum limit of Rs. 350,000 to install solar power generating units to arm people with an alternative energy source.

The loan beneficiaries are allowed to repay these loans within five years. Fifty percent concessionary interest will be offered to the beneficiary households. Prospective household can purchase solar power units through system providers registered with the Sri Lanka Renewable Energy Authority. These households can earn extra income by transmitting back excess solar energy to the national grid. This will help increase power generation to the national grid.

The above mentioned measures  taken by the Government not only will eradicate poverty in the country but will also improve the living standard of the people through various methods proposed, including the mechanisation and commercialisation of agriculture, transforming the  existing welfare economy into a  manufacturing economy, which can be considered one of the biggest milestones recorded in the political and economic history of Sri Lanka, thereby creating an export-oriented economy and elevating the country towards a takeoff position.