A Blueprint to Revive Farming

News: The recently released Budget 2022-23 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.

What is the need to increase Agri-credit?

First, both the budget speech and the Economic Survey 2021-22 recommended crop diversification and inclusion of horticulture, organic farming, dairying and fishing to increase farmers income. But to enable this shift and to improve income through allied sectors, farmers must have access to institutional credit at reasonable rates of interest.

Second, credit is critical for achieving higher farm output. Institutional credit will help delink farmers from non-institutional sources where they borrow at high rates of interest.

Why the huge credit and subsidy will not necessarily help farmers?

One, the volume of credit has grown but its quality and impact on agriculture has deteriorated. Over the years, the growth rate in the agriculture sector has been falling.

It was 6.8 per cent in 2016-17, whereas it is 3.9 per cent in 2021-22. Agricultural credit has become less efficient in delivering growth.

Two, majority of subsidized agri-credit is grabbed by a handful of big farmers and agri-business companies.

According to RBI, the agricultural households with the small landholding get only about 15 per cent of the subsidized loan, but the big farmers get 79 per cent of subsidized loans.

As per the Situation Assessment Survey of Agricultural Households by NSSO, the share of institutional loans increases with an increase in land possessed.

Three, 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 per cent 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.

Also, the subsidised credit is being refinanced to small farmers and in the open market at interest rates up to 24 per cent.

What is the way forward?

First, the Working Group on Agriculture Production constituted in 2010 had recommended that credit should be made available at no more than 4 per cent per annum rate of interest.

Second, Institutional development across states should be priority area for equitable and uniform flow of subsidized credit across states.

Three, 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.

Four, state governments should regularly monitor credit flow. Also, a comprehensive list of all farm-related activities should be prepared by the banks in consultation with NABARD, agriculture experts, farmers and administration.

For example, in Haryana the law was amended to provide the recovery of the cooperative loans by leasing out the mortgaged land in place of selling, in the event of default. The Haryana model on agri-credit can be a blueprint for other states.

Fifth, the eligibility criteria for providing agriculture loans should be further simplified, liberalized and the repayment schedule should be according to the farmers’ capacity.

Source: This post is based on the article “A Blueprint to Revive Farming” published in Indian Express on 14^th Feb 2022.