The performance of the agricultural sector has not been commensurate with the increase in subsidized credit it receives

Farmers on the warpath would like to say that agricultural reforms have once again taken center stage not only in the minds of politicians but also policy makers. To enable small farmers to diversify their crops or improve their incomes, they must have access to credit at reasonable interest rates. This has been a program of the Central, State and Reserve Bank of India (RBI) triad for decades. Unfortunately, while the volume of credit has improved over decades, its quality and impact on agriculture has only deteriorated. Agricultural credit has become less effective in ensuring agricultural growth. If not, why should over 85% of farmers’ incomes remain stagnant over the years? Any other sector that has access to a low interest rate credit has always exploded and exploded to the point that it created its own bubble.

Each year, the central government announces an increase in the subsidized farm credit limit target and banks exceed the target. On February 1, budget day, the Union Minister of Finance will again set a new agricultural credit target for 2021-2022. In 2011-12, the target was 4.75 lakh crore; now agri-credit has reached the target of ₹ lakh 15 crore in 2020-2021 with an allocated grant of ₹ 21,175 crore. The question is: where does the credit and the subsidy go and do they really benefit farmers?

Data | Farmers, new agricultural laws and public markets

Most small farmers are left behind

Over the past 10 years, agricultural credit has increased by 500% but has not even reached 20% of the small and marginal 12.56 crore. Despite an increase in agricultural credit, even today 95% of tractors and other agricultural implements sold in the country are financed by non-bank financial corporations, or NBFCs, at an interest rate of 18%; the interest rate on long-term loans from banks for the purchase of these is 11%.

The central bank, the RBI, also questioned the agricultural households with the lowest land ownership (up to two hectares) obtaining only about 15% of the outstanding credit subsidized from institutional sources (bank, cooperative society ). The share is 79% for households belonging to the highest size class of owned land (over two hectares), beneficiaries of subsidized institutional credit at an interest rate of 4% to 7%. As in the Census of Agriculture, 2015-16, the total number of small and marginal farming households in the country stood at 12.56 crore. These small and marginal farms represent 86.1% of the total farms. As in the survey to assess the situation of agricultural households carried out by the National Office for Sample Surveys (NSSO), Ministry of Statistics and Program Implementation, the share of institutional loans increases with the increase owned land – showing that most of the subsidized agricultural credit is being taken up. by large farmers and agribusinesses.

A vague definition of agri-credit has led to the flight of loans at subsidized rates to large companies in the agri-food sector. Although the RBI has set a cap that, of a bank’s overall adjusted net bank credit, 18% must go to the agricultural sector, and within this framework, 8% must go to marginal small farmers and 4.5% to farmers. indirect loans, routine bank advances. cross the line.

Read also | Govt. closely monitoring agricultural credit granted by banks: Nirmala Sitharaman

In 2017, 53% of the agricultural credit that the National Bank for Agriculture and Rural Development (NABARD) granted in Maharashtra was allocated to the city and suburb of Mumbai, where there are no farmers. , only agro-industry. It has provided indirect loans to traders and sellers of fertilizers, pesticides, seeds and agricultural implements who work for farmers.

Many irregularities

A review by the RBI’s internal task force in 2019 revealed various inconsistencies. He found that in some states, credit disbursements to the agricultural sector exceeded their agricultural gross domestic product (GDP) and that the ratio of crop loans disbursed to input needs was very unevenly distributed. Examples are Kerala (326%), Andhra Pradesh (254%), Tamil Nadu (245%), Punjab (231%) and Telangana (210%). This shows the misappropriation of credit for non-agricultural purposes. One of the reasons for this diversion is that the subsidized credit disbursed at an interest rate of 4% to 7% is refinanced in favor of small farmers and on the open market at an interest rate of up to 36%.

Subsidized credit should be “the cause of viable agriculture but, unfortunately, the performance of the agricultural sector has not been commensurate with the subsidized credit it has received”. Even the new agricultural laws did not address the reform of the agricultural credit system.

Read also | Ministry of Finance writes to RBI to relax NPA standards on agricultural loans

The way forward is to empower marginal small farmers by “giving them direct income support per hectare rather than massively subsidizing credit.” Streamlining the agricultural credit system to facilitate higher loans for crops to farmer organizations or smallholder farmers’ FPOs compared to commodity stocks can be a win-win model for boosting agricultural growth. “.

Technology as a solution

With mobile phone penetration among farm households in India reaching 89.1%, prospects for aggressive efforts to improve the provision of institutional credit through technological solutions may reduce the extent of financial exclusion of farm households . Farmers were able to avail loans through mobile phone apps, according to a media report. These apps use satellite image reports that capture the extent of land owned by farmers in states where land records are scanned and they cultivate the crop to digitally extend Kisan credit card loans. Instantly, if not, the farmers have to produce the certified copy of the land register of the revenue department, which takes a long time. Other measures include reforming the leasing framework and establishing a national-level agency to achieve consensus between states and the Center on agricultural credit reforms to close the gap and achieve the greatest number of marginal smallholders.

AS Mittal is Vice President (rank of Cabinet Minister), Punjab State Planning Council and Sonalika Group, and President of ASSOCHAM (Northern Council). The use of various media reports and documents is recognized. Opinions expressed are personal


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