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Mysteries on India’s Agricultural Credit Supply

June 4, 2015 • GLOBAL ECONOMY, FINANCE & BANKING, India

By Dr. A. Narayanamoorthy and Dr. P. Alli 

Following the announcement of comprehensive credit policy of 2004, an impression is often gained from the official statements that all agrarian problems can be set right with the enhancing of agriculture credit. The article queries whether government credit expansion policies are reaching the targeted beneficiaries and argues that enhanced credit is not enough in itself because enhanced institutional credit, without more, to agriculture in a way contributes to more of farm indebtedness.

Is the big fat institutional farm credit, of the farmers and for the farmers? As the farmers generally wait for monsoon showers and gear up to organize money to purchase farm inputs to cultivate crops, it is expected that the credit extended by banks to agriculture sector should expand during this period. If it does, who benefits from such significant increase in farm credit? This particular issue assumes paramount importance especially in the wake of the observation of The Rangarajan Committee on Financial Inclusion (2008) that a bulk of small and marginal farmers does not have access to institutional credit. Close on the heels of this Report, came the recently released Nachiket Mor Committee on Comprehensive Financial Services for Small Business and Low Income Households (2013), which observed that the agriculture sector has long distance to go before it reaches the 50 percent financial depth. Do these observations hint out at the disturbing trends surrounding agriculture credit? According to data published by the Reserve Bank of India (RBI), the share of marginal and small farmers in agriculture credit disbursements by commercial banks has declined considerably, while the share of large farmers has sharply risen in the recent period. Where is the priority sector lending heading? Is it losing its track?

Following the announcement of comprehensive credit policy of 2004, an impression is often gained from the official statements that all agrarian problems can be set right with the enhancing of agriculture credit. Consequently, the focus of every budget and five-year plan deliberations has been on setting of agriculture credit targets. The Union Budget of 2013 was also no different as the country’s Finance Minister announced that the target for agricultural credit would be increased to Rs. 7 lakhs crore as compared to Rs. 5.75 lakhs crore over its previous year. Quite a few scholars have believed this quantum jump as the panacea to all evils happening in the agricultural front today. If that is so, then why incidents of farm suicides have risen from 1,08,593 in 2000 to 1,34,599 in 2010? If such massive credit expansion policies of the government are not reaching the targeted beneficiaries, then where is it going?

 
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