Improvements in agri-credit system can revive agriculture

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Improvements in agri-credit system can revive agriculture

  • This budget 2022-23 has disappointed the farming sector.
  • The government has increased the agricultural credit target to Rs 18 lakh crore for 2022-23 from Rs 16.5 lakh crore for the current fiscal, with an allocated subsidy of Rs 20,870 crore.
  • The question, however, is if the huge credit and subsidy benefiting farmers on the ground?

Plight of Indian Agriculture

  • The budget speech as well as the Economic Survey 2021-22 recommended that priority should be given to crop diversification and allied sectors i.e. horticulture, organic farming, dairying and fishing to increase farmers income.
  • But to enable small farmers to shift from wheat and paddy or improve their income through allied sectors, they must have access to institutional credit at reasonable rates of interest.
  • While the volume of credit has grown over the decades, its quality and impact on agriculture has deteriorated.
  • Over the years, the growth rate in the agriculture sector has been falling from 6.8 % in 2016-17, to 3.9 % in 2021-22.
  • Agricultural credit has become less efficient in delivering growth.
  • As per the Situation Assessment Survey of Agricultural Households by NSSO, the share of institutional loans increases with an increase in land possessed.
  • In the last 10 years, agriculture credit increased by 350%, but it has not reached even 15% of the 12.56 crore small and marginal farmers.
  • The share is 79% for households belonging to the highest size class of land possessed (above 2 hectares).
  • A loose definition of agri-credit has led to the leakage of loans at subsidised rates to large agri-firms.
  • For example, in 2017, 53% of the agriculture credit that NABARD provided to Maharashtra was allocated to Mumbai metro city and suburbs, where there are no agriculturists, only agri-business.
  • One of the main reasons for this diversion is that subsidised credit disbursed at 4% to 7 % rate interest is being refinanced to small farmers and in the open market at interest rates up to 24%.

Relevance of institutional credit

  • Credit is critical for achieving higher farm output.
  • Institutional credit helps delink farmers from non-institutional sources, where they are compelled to borrow at usurious rates of interest.

Corrective measures

  • Working Group on Agriculture Production constituted in 2010 recommended strategies and action plans for increasing agriculture production and productivity, including long-term policies to ensure sustained growth.
  • It laid emphasis on the easy availability of institutional credit to farmers for future growth, recommending that “credit should be made available at not more than 4 per cent per annum rate of interest”.
  • This was implemented throughout the country.
  • However, in Haryana, the government extended crop credit to farmers at a 0% rate of interest through state co-operatives.

Changes in the agri-credit system: Suggestions

  • Ensuring a proper and uniform flow of agricultural subsidised credit across all states.

  • State governments should work in close coordination with the banking system for the promotion of more Joint Liability Groups (JLGs) as per NABARD guidelines to ensure that formal credit reaches financially-excluded farmers.

  • State governments should regularly monitor credit flow.

  • The rate of interest for long-term loans should be kept at 4%.

  • A comprehensive list of all farm-related activities should be prepared by the banks in consultation with NABARD, agriculture experts, farmers and administration.

  • Eligibility conditions/criteria for providing agriculture loans should be further simplified and liberalised.

  • The repayment schedule should be according to the farmers’ capacity.

  • Agriculture is one of the largest employment generating sectors in the country. Uniform distribution of Agri-credit is of utmost importance as small and marginal farmers are mostly dependent on institutional credit for their agri requirements. The importance of eliminating Ghost beneficiaries or ingenuine applications for credit come to the forefront if the Government truly wants “an inclusive agri economy’.