SIES-FPJ: Agriculture finance is a struggle since Independence

09:08 PM Jul 28, 2021 |

Rural distress is a reality. Figures after figures from Nabard and other organisations have confirmed this. Adding to it is the burden on account of the COVID-19 Pandemic which finally persuaded the Prime Minister, Narendra Modi to announce a financing facility worth Rs 1 lakh crore under the Agriculture Infrastructure Fund. This fund will be for agri-entrepreneurs, startups, agri-tech players and farmer groups for post-harvest management and nurturing farm assets. While this is a long-term plan which is crucial, there is a need to look at India’s short-term credit needs as well.

In order to give a perspective to long-term and short-term credit needs of the farming community, SIES and Free Press Journal in association with NSE, NCDEX Investor (Client) Protection Fund Trust, and East-West Seed is organising a webinar titled ‘Rural distress, the government doles and Agri finance’ on August 13, 2020, at 3 pm.


Click here to register


The panelists for the session are (in alphabetical order) Kavita Jha, AVP, NCDEX; Suhas Joshi, Head-Sustainability and Business Stewardship, Bayer South Asia; Arun Raste, Executive Director, NDDB; and P V S Suryakumar, Deputy Managing Director, NABARD. The session will be moderated by RN Bhaskar, Consulting Editor, Free Press Journal.

The causes of distress are many. Finance is one of them. Access to markets is another issue. The pernicious influence of doles is a third. The need for handholding to help him adopt technology in farming is a fourth. But access to finance is crucial. Most Indian farmers are largely dependent on money-lenders (non-institutional sources). The moneylender is also – quite often – the person who arranges to purchase the crop from the farmer. Unfortunately, teaching farmers not to repay loans, made banks wary of farmer borrowers. So it was back to the moneylender.

Nevertheless, access to finance has improved. It is estimated that the role of non-institutional sources sharply declined in 1981. According to the AIDIS report, non-institutional sources were dominant in 1951, accounting for 90 per cent of the outstanding debt of cultivator households, but their share declined sharply to 37 per cent in 1981. It was found that after 1981, the rate of decline slowed down, and the share of non-institutional sources was 35 per cent in 1991, stated RBI.

As per NAFIS survey 2016-17, the share of institutional credit in agriculture increased from 10.2 per cent in 1951 to 63 per cent in 1981 and thereafter the share of institutional credit was hovering in the range of 63-65 per cent during 1981 to 2013. It was found that the share of institutional credit was approximately 72 per cent, as per 2016-2017 data.

The ratio of agri-credit outstanding to agri-GDP increased from 0.6 per cent in 1950-51 to 51.56 per cent in 2017-18.

But due to some limitations of institutional sources, the non-institutional sources continue to exist sans the gruesome agreements. While banks were very conservative in lending, it was only after the introduction of Priority Sector Lending (PSL) the credit flow uptick to small and marginal farmers saw a decent increase, as per RBI data. The Kisan Credit Card (KCC) scheme was an innovative product that boosted farm credit. However, it needs impetus. Such innovative instruments will be valuable to make credit flow accessible to agribusiness.

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