India’s agriculture credit increased by 500% in the last decade, however, this increase in the credit has not been reflected in the condition of the farmers. The article deals with the issues with the agri-credit in India.

Impact of credit on agriculture

• Providing credit to small farmers at a reasonable rate has been the agenda of the Centre, the States, and the Reserve Bank of India (RBI) for decades.
• However, the volume of credit has improved over the decades, its quality and impact on agriculture have only deteriorated.
• In 2011-12, the target was ₹4.75-lakh crore; now, agri-credit has reached the target of ₹15-lakh crore in 2020-21 with an allocated subsidy of ₹21,175 crores.
• Agricultural credit has become less efficient in delivering agricultural growth.

Issues with agri-credit: small farmers left-out

• In the last 10 years, agriculture credit increased by 500% but has not reached even 20% of the 12.56 crore small and marginal farmers.
•  95% of tractors and other agri-implements sold in the country are being financed by non-banking financial companies, or NBFCs, at an 18% rate of interest.
• The RBI has also questioned agricultural households with up to two hectares getting only about 15% of the subsidized outstanding loan from institutional sources (bank, co-operative society).
•  As per the Agriculture Census, 2015-16, the total number of small and marginal farmers’ households in the country stood at 12.56 crore which makes up 86.1% of the total holdings.
• As in the Situation Assessment Survey of Agricultural Households by the National Sample Survey Office (NSSO), the share of institutional loans rises with an increase in land possessed.
• This shows that the bulk of subsidized agri-credit is grabbed by big farmers and agri-business companies.

What are the reasons

• A loose definition of agri-credit has led to the leakage of loans at subsidized rates to large companies in agri-business.
• The RBI had set a cap that out of a bank’s overall adjusted net bank credit, 18% must go to the agriculture sector, and within this, 8% must go to small and marginal farmers and 4.5% for indirect loans, bank advances routinely breach the limit.
• A review by the RBI’s internal working group in 2019 found that in some States, credit disbursal to the farm sector was higher than their agriculture gross domestic product (GDP) and the ratio of crop loans disbursed to input requirement was very unevenly distributed.
•  This shows the diversion of credit for non-agriculture purposes.
• One reason for this diversion is that subsidized credit disbursed at a 4%-7% rate of interest is being refinanced to small farmers, and in the open market at a rate of interest of up to 36%.

Way forward

• The way forward is to empower small and marginal farmers by ‘giving them direct income support on a per hectare basis rather than hugely subsidizing credit.
• Streamlining the agri-credit system to facilitate higher crop loans to farmer producer organizations, or the FPOs of small farmers against commodity stocks can be a win-win model to spur agriculture growth’.
• With mobile phone penetration among agricultural households in India being as high as 89.1%, efforts to improve institutional credit delivery through technology-driven solutions can reduce the extent of the financial exclusion of agricultural households
• There is a need to reforming the land leasing framework and creating a national-level agency to build consensus among States and the Centre concerning agriculture credit reforms.

Consider the question “Growth in the agriculture sector in India has not been commensurate with the growth in the agriculture credit. What are the reasons for this disparity? Suggest the measures to deal with the challenges in agri-credit delivery.”

Conclusion

Improving the access to credit at a reasonable rate will help in increasing their income but to do that reforms in credit delivery is the need of the hour.

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