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‘‘Need to Reform Agri-Credit System”
Streamlining the agri-credit system to facilitate higher crop loans to farmer-producer organisations of small farmers against commodity stocks can be a win-win model
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For the last five months, farmers on the warpath mean that agricultural reforms have again occupied centre stage not just in the minds of the politicians but also policymakers in Punjab. For small farmers to diversify crops or improve their income, they must have access to credit at reasonable rates of interest. This has been an agenda of the triad of Centre, States and Reserve Bank of India for decades. Unfortunately, while the volume of credit has improved over the decades, its quality and impact on agriculture has only deteriorated.In the last ten years, agriculture credit flow has increased over 300 per cent, but it has not reached even 20 per cent of the 12.56 crore small and marginal farmers. Despite an increase in agri-credit, even today, 95 per cent of tractors and other agri-implements sold in the country are being financed by NBFC (non-banking finance companies) at 18 per cent rate of interest whereas banks’ long-term loans rate of interest for purchasing of the same is 11 per cent.
Agricultural credit has become less efficient in delivering agricultural growths. Otherwise, why should over 85 per cent of farmers’ income remain stagnant over the years? Even new farm laws have not addressed this issue.
Every year the central government announces an increase in the target of subsidised agriculture credit limit and banks surpass the target. For the 2021-22 Budget, Finance Minister Nirmala Sitharaman has again set a new agricultural credit target of Rs 16.50 lakh crore, 10 per cent more than the target of Rs 15 lakh crore for the current fiscal year. In 2011-12, the target was Rs 4.75 lakh crore. Where is the credit and subsidy going and is it really benefiting the farmers?
The RBI has also questioned that the agricultural households with the lowest landholding (up to two hectares) get only about 15 per cent of the subsidised outstanding loan from institutional sources (banks, co-operative society). The share is 79 per cent for households belonging to the highest size class of land possessed (above 2 hectares).
As per the agriculture census 2015-16, the total number of small and marginal farmer households in the country were 12.56 crore. These small and marginal holdings make up 86.1 per cent of the total holdings. As per the Situation Assessment Survey of Agricultural Households by NSSO, the share of institutional loans increases with an increase in land possessed. It shows that the bulk of subsidised agri-credit is grabbed by big farmers and agri-business companies. A loose definition of agri-credit has led to the leakage of loans at subsidised rates to large companies in agri-business. Though the RBI had set a cap that out of a bank’s overall Adjusted Net Credit, 18 per cent must go to the agriculture sector and within this 8 per cent must go to small and marginal farmers and 4.5 per cent for indirect loans, bank advances routinely breach the limit. In 2017, 53 per cent of the agriculture credit that NABARD provided to Maharashtra is allocated to Mumbai city and suburbs, where there are no agriculturists, only agri-businesses.
The way forward Empower small and marginal farmers by giving them direct income support on a per hectare basis rather than hugely subsidising credit. Streamlining the agri-credit system to facilitate higher crop loans to farmer-producer organisations (FPO) of small farmers against commodity stocks can be a win-win model. With mobile phone penetration among agricultural households being as high as 89.1 per cent, improving institutional credit delivery is needed through technology-driven solutions to reduce the financial exclusion.
(The author is Vice Chairman, Sonalika Group; Vice Chairman, Cabinet Minister Rank - Punjab State Planning Board, & Chairman - ASSOCHAM, Northern Council)
Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.