Ground-level Credit in Agriculture and its Impacts

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Context: There has been a healthy off-take of ground-level credit (GLC) in agriculture and allied sectors. In the financial year (FY) 2018-19, banks disbursed Rs 12.55 trillion as GLC to agriculture, surpassing the government’s target of Rs 11 trillion. This should be cause for celebration but, unfortunately, the agriculture sector’s performance has not been commensurate with the credit that it has received.

Relevance:
Prelims: Current events of national and international importance
Mains: GS III-

  • Government Budgeting, Major crops cropping patterns in various parts of the country, different types of irrigation and irrigation systems storage, transport and marketing of agricultural produce and issues and related constraints.
  • E-technology in the aid of farmers Issues related to direct and indirect farm subsidies and minimum support prices.

Credit flow in agriculture :

                     

  • A percentage of the agricultural GDP, which should be the real measure of agri-credit growth, the rise has not been smooth.
  • For example, during the
    • The pre-reform period (1971-72 to 1989-90), direct agri-credit flow as a percentage of agri-GDP increased at a modest average annual growth rate (AAGR) of 4.2 percent.
    • However, during 1990-91 to 1999-2000, AAGR decelerated to 3.2 percent per annum. But during 2000-01-2007-08, it witnessed a tremendous growth at 12 percent per annum,
    • But only to fall back to just 3.6 percent per annum in the period between 2008-09 and 2017-18.
  • The 40-year period, from 1971-72 to 2017-18, there has been a more than 1,000-times increase in agri-credit — from a meager Rs 7.8 billion to Rs 8,235 billion. 
  • The All India Financial Inclusion Survey (NAFIS) of 2015-16 by NABARD reported that 30.3 percent of all agriculture households availed credit from institutional sources.

 Interest subvention scheme :

  • This involved giving crop loans to farmers at a 7% interest rate; those who paid their loans back regularly would then get crop loans at a 4 percent interest rate.
  • The scheme created opportunities for farmers to take crop loans at subsidised interest rates from the banking sector and then divert them for non-agriculture purposes.
  • Since long-term credit is basically for investments and capital formation in agriculture, this dramatic fall in the share of such credit takes a heavy toll on-farm productivity and the overall growth of the agri-sector. 

Revisit the credit giving facility:

  • All crop loans, especially those availing interest subvention, should be routed through Kisan Credit Cards to ensure farmers don’t use loans for non-agricultural purposes.
  • empower farmers by giving them direct income support on a per hectare basis — rather than hugely subsidising credit.



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