Improving the agricultural credit system can revive agriculture

This budget disappointed the agricultural sector. The government has increased the agricultural credit target to Rs 18 lakh crore for 2022-2023 from Rs 16.5 lakh crore for the current financial year, with an allocated grant of Rs 20,870 crore. The question, however, is: are the huge credits and subsidies benefiting the farmers on the ground?

The budget speech as well as the 2021-22 economic study recommended that priority be given to crop diversification and related sectors, including horticulture, organic farming, the dairy industry and fishing, in order to increase farmers’ incomes. But to enable small farmers to move away from wheat and paddy or improve their incomes through related sectors, they must have access to institutional credit at reasonable interest rates.

While the volume of credit has increased over the decades, its quality and impact on agriculture has deteriorated. Over the years, the growth rate of the agricultural sector has decreased: it was 6.8% in 2016-2017, while it is 3.9% in 2021-22. Agricultural credit has become less effective in ensuring growth.

Over the past 10 years, agricultural credit has increased by 350%, but it has not even reached 15% of the 12.56 million small and marginal farmers. Credit is essential for increasing agricultural production. Institutional credit will help decouple farmers from non-institutional sources, where they are forced to borrow at usurious interest rates.

The RBI asked if farming households with the smallest land holdings (up to two hectares) only get about 15% of the subsidized loan from institutional sources. The share is 79% for households belonging to the largest size class of owned land (more than 2 hectares). According to the assessment survey of the situation of agricultural households by the ONSS, the share of institutional loans increases with the increase in land owned. Clearly, most subsidized agricultural credit is captured by a handful of large farmers and agribusinesses.

A vague definition of agricultural credit has led to the flight of loans at subsidized rates to large agricultural enterprises. For example, in 2017, 53% of the agricultural credit that NABARD provided to Maharashtra was allocated to the metropolitan city and suburbs of Mumbai, where there are no farmers, only agribusinesses.

One of the main reasons for this diversion is that subsidized credits disbursed at interest rates of 4 to 7 percent are refinanced to small farmers and on the open market at interest rates of up to 24 percent. .

As Chairman of the Agricultural Production Task Force formed in 2010 by then Prime Minister Manmohan Singh, I had recommended strategies and action plans to increase agricultural production and productivity, including long-term policies to ensure sustained growth. The task force report emphasized ease of access to institutional credit for farmers for future growth, recommending that “credit be made available at an interest rate not exceeding 4% per year “. This was implemented by the UPA government nationwide. However, in Haryana, the Congress government has extended crop credit to farmers at zero percent interest through state cooperatives.

I suggest the following changes in the agricultural credit system. First, the flow of agricultural credit has not been uniform across states. Institutional development across states is a priority area for an equitable flow of subsidized credit. Second, state governments should work in close coordination with the banking system to promote more joint liability groups (JLGs) in line with NABARD guidelines to ensure that formal credit reaches financially excluded farmers. . Third, state governments should regularly monitor credit flows. Fourth, the interest rate for long-term loans should be maintained at 4%. Fifth, a comprehensive list of all agriculture-related activities should be prepared by the banks in consultation with NABARD, agricultural experts, farmers and the administration. Sixth, the eligibility conditions/criteria for granting agricultural loans should be further simplified and liberalized. The repayment schedule should be based on the capacity of the farmers.

As Chief Minister of Haryana, I had amended the law to ensure the recovery of cooperative loans by renting the mortgaged land instead of selling it, in the event of default by the farmer, with the mutual consent of the cooperative society and the farmer. Not a single farmer was arrested in Haryana during my tenure for defaulting on loans taken from cooperatives. The Haryana agricultural credit model introduced by a Congress government may be a model for other states.

(The author is the former Chief Minister, Haryana)