Whither farm credit?

THE KHARIF SEASON is estimated to have yielded a record grain production of 105 million tonnes and with prospects now looking bright for an excellent rabi crop as well, it is quite likely that 2001-02 will see the largest ever production of grain — surpassing the 1999-2000 peak of 209 million tonnes. Yet, the underlying problems of Indian agriculture remain. Production is prone to year-to-year fluctuations, there are crop and regional imbalances in output and the level of capital formation is very low. In addition, there are the more recent problems of declining crop prices and import competition which have made farmers view the future with considerable insecurity. The bumper harvest of 2001-02 must also be seen in perspective. It follows a year in which production declined and a decade when for the first time since the 1970s the annual increase in food output fell behind the growth in population.

The 2001 edition of the Reserve Bank of India's Currency and Finance Report has highlighted yet another problem, the deceleration in the growth of agricultural credit, which could have serious long-term implications for Indian agriculture. It is not a new development, but what the RBI report has done is to underline its seriousness especially since it is being experienced more by the small and marginal farmers. The annual growth of credit disbursals for short and long-term loans by the scheduled commercial banks declined from an average of 18.6 per cent during the 1980s to 15 per cent during the 1990s. This is not a large decline, but what did fall sharply was the growth of credit to small farmers. For farmers cultivating less than 2.5 acres of land, the decline between the two decades in the rate of growth was close to 50 per cent and for those cultivating between 2.5 and 5 acres the fall was by about one-third. In other words, those who need formal credit the most are the ones falling behind in their access to loans. The RBI Report provides the reason for this deceleration in growth of loan disbursal. While banks are supposed to provide 18 per cent of their advances to this priority sector, the Government has provided them with escape routes. They only have to deposit the shortfall in either the Rural Infrastructure Development Fund or the Small Industries Development Bank of India and they will not attract strictures from the central bank. Of course, the scheduled commercial banks are not the only sources of credit for farmers, though these institutions do provide nearly 40 per cent of the total disbursals. In recent years, advances from agricultural co-operative societies have overtaken bank advances. But this change is unlikely to have mitigated the problem because anecdotal evidence suggests that the co-operative credit system is in much poorer shape than the farm credit system of the commercial banks.

One of the unsung achievements of bank nationalisation was to expand manifold the advances to agriculture by the formal system. This contributed to a substantial weakening, in at least some parts of the country, of the hold that informal suppliers of credit had on the agriculturists, especially the small and marginal farmers. The phenomenon of loan waivers in the late 1980s and early 1990s did do considerable damage to the system. But the slowdown in agricultural credit growth is part of a larger process, which no longer considers this a priority. In this situation, clearly more has been claimed about the kisan credit cards, which were introduced a few years ago, than is their real role in meeting the credit needs of agriculture. A certain category of farmers may well be using these credit cards for their ease of operation and perhaps even to shuffle their sources of credit. However, they are clearly not facilitating the flow of credit to those who are most in need of timely and low-cost loans.

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