Agriculture credit

Agriculture credit

1. Agriculture Credit Vaibhav

2. Meaning of Credit The word “credit” comes from the Latin word “Credo” which means “I believe”. Hence credit is based upon belief, confidence, trust and faith. Credit is otherwise called as loan. Credit/loan is certain amount of money provided for certain purpose on certain conditions with some interest, which can be repaid sooner (or) later .

3. Agriculture Credit Agricultural credit is considered as one of the most basic inputs for conducting all agricultural development programmes . In India, there is an immense need for proper agricultural credit as Indian farmers are very poor. From the very beginning, the prime source of agricultural credit in India was money lenders. After independence, the Government adopted the institutional credit approach through various agencies like co-operatives, commercial banks, regional rural banks etc. to provide adequate credit to farmers, at a cheaper rate of interest. Moreover, with growing modernization of agriculture during the post-green revolution period, the requirement of agricultural credit has increased further in recent years .

4. What is Rural Credit? Agriculture is the primary source of income of individuals residing in the rural regions across India. Every year, farmers and peasants need to invest a considerable amount of funds to ensure a healthy harvest. Thus, they often resort to borrowing money from moneylenders and financial institutions to full their basic needs before harvest season arrives, and they can earn money by selling their crops. Thus, any loan taken for agricultural purposes or small home businesses across the rural areas in India is known as a rural credit.

5. Difference between Agricultural Finance and Rural Credit There is a difference between agricultural credit and rural credit. Agricultural credit is linked with the growth of agriculture; whereas rural finance covers all the aspects of socio-economic life of rural area. It covers a wide variety of farm and non-farm productive activities such as agriculture, animal husbandry, fisheries forestry, small agro-based industries as well as development of physical and social infrastructure in the form of transport and communication, water and power education and health etc.

6. Need for Agricultural Credit: Credit is required in every type of business and agriculture is not exception to it. The need for agricultural credit however becomes all the more impotent when it moves from traditional agriculture to modern agriculture. The agricultural sector at present is beset with a number of handicaps. The land holding is very small. The population is growing at a fast rate. Agricultural labouris often underemployed. Production suffers from weather risks. The capacity of the farmers to save and invest is very low. The agricultural productivity is low due to low use of in-puts. The farmers, therefore, need credit to increase productivity and efficiency in agriculture. This need is increasing over the years with the rise in use of fertilizers, mechanization and rise in prices. Briefly the need for agricultural credit can be summed up as under.

7. The following points reveals the need for agricultural credit 1.Purchase of new inputs: 2.Purchase of Implements : 3.Better Management of Risk: 4.Permanent Improvement in Land :. 5 .Better marketing of Products 6.To Face Crisis 7.Purchase of Cattle 8.Payment of ancestor’s Debt 9.Consumption Expenditures 10.Civil and Criminal Suits

8. Types of agricultural / rural credit Considering the period and purpose of the credit requirement of the farmers of the country, agricultural credit in India can be classified into three major types Short term credit:  The Indian farmers require credit to meet their short term needs viz., purchasing seeds, fertilizers, paying wages to hired workers etc. for a period of less than 15 months. Such loans are generally repaid after harvest . Medium-term credit:  This type of credit includes credit requirement of farmers for a medium period ranging between 15 months and 5 years and it is required for purchasing cattle, pumping sets, other agricultural implements etc. Medium-term credits are normally larger in size than short term credit . Long term credit:  Farmers also require finance for a long period of more than 5 years just for the purpose of buying additional land or for making any permanent improvement on land like the sinking of wells, reclamation of land, horticulture etc. Thus, the long term credit requires sufficient time for the repayment of such loan.

9. Sources of Agricultural Credit •Credit in the farm sector is available from two sources 1.Non-Institutional Sources 2.Institutional Sources

10. 1 . Non-institutional Sources of Rural Credit : The major non-institutional sources of farm credit are 1.Money lenders 2.Friends 3.Relatives 4.Landlords 5.Shopkeepers 6.Commission agents The Money Lenders, were the main suppliers of loans to the farmers. However, their importance has decreased to a great extent now and the short-term credit needs of the farmers are met from commission agents, friends and relatives. The commission agents advance loans to the farmers for short-period. They force the farmers to sell the produce to them which generally is purchased at low rates.

11. The lenders of the informal sources (friends, relatives etc ) have certain advantages over the formal credit sources . • The informal lenders usually know the borrowers personally . • They require little security for advancing loans • The loans are provided for consumption as well as production purposes . • The lenders are approachable at all times . • They are also lenient in rescheduling loans.

12. 2.Institutional Sources (Rural Credit) 1. Land Development Bank 2. Co-operative Credit Societies 3. Regional Rural Banks 4. Commercial Banks 5. Government

13. Sources of agriculture credit Apart from the moneylenders, cooperative credit sources and the government, nowadays, the long term and short term credit needs of institutions are also being met by National Bank for Agricultural and Rural Development (NABARD). Sources of agricultural credit can be broadly classified into institutional and non-institutional sources. Non-Institutional sources include moneylenders, traders and commission agents, relatives and landlords, but institutional sources include co-operatives, commercial banks including the SBI Group, RBI and NABARD .

14. Commercial banks In the initial period, the commercial banks of our country have played a marginal role in advancing rural credit. With the help of “ village adoption scheme ” and service area approach the commercial banks started to meet the credit and other requirements of the farmers. They also sponsored various regional rural banks for extending credit to small and marginal farmers and rural artisans just to save them from the clutches of village moneylenders. Commercial banks are finding difficulty in advancing loans to the farmers particularly in respect of lending techniques, security, recovery etc. and are expected to overcome these gradually. But the commercial banks are not very much interested to advance loan to small and marginal farmers.

15. Government: Another important source of agricultural credit is the Government of our country. These loans are known as taccavi loans and are lend by the Government during emergency or distress like famine, flood etc. The rate of interest charged against such loan is as low as 6 per cent. During 1990-91, the state Governments had advanced nearly Rs 350 crore as a short-term loan to agriculture. But the taccavi loan failed to become very much popular due to official red- tapism and corruption.

16. Credit facility to farmers : Kissan credit card : The Kissan Credit Card (KCC) scheme was launched in 1998 with the aim of providing short-term formal credit to farmers. Owner cultivators, as well as tenant farmers, can avail loans to meet their agricultural needs under this scheme at attractive rates of interest. The government has also simplified the application process to increase interest among farmers. Repayment is also simplified and dependent on the harvesting season, reducing the farmers’ debt burden. Investment loan : Loan facility to the farmers is available for investment purposes in the areas viz. Irrigation, Agricultural Mechanization, Land Development, Plantation, Horticulture and Post-Harvest Management. Interest subvention scheme : The interest subvention scheme for farmers aims at providing short term credit to farmers at the subsidised interest rate.  The policy came into force with effect from Kharif 2006-07. The scheme is being implemented for the year 2018-19 and 2019-20. The interest subvention will be given to Public Sector Banks (PSBs), Private Sector Banks, Cooperative Banks and Regional Rural Banks (RRBs) on use of own funds and to NABARD for refinancing to RRBs and Cooperative Banks. The Interest Subvention Scheme is being implemented by NABARD and RBI.

17. Impact of credit on agriculture Providing credit to small farmers at a reasonable rate has been the agenda of the Centre, the States, and the Reserve Bank of India (RBI) for decades. However, the volume of credit has improved over the decades, its quality and impact on agriculture have only deteriorated. In 2011-12, the target was ₹4.75-lakh crore; now, agri -credit has reached the target of  ₹15-lakh crore in 2020-21  with an allocated subsidy of ₹21,175 crores. Agricultural credit has become less efficient in delivering agricultural growth .

18. Issues with agri -credit: small farmers left-out In the last 10 years, agriculture credit increased by 500% but has not reached even 20% of the 12.56 crore small and marginal farmers.  95% of tractors and other agri -implements sold in the country are being financed by non-banking financial companies, or NBFCs,  at an 18% rate of interest . The RBI has also questioned agricultural households with up to two hectares getting only about 15% of the  subsidized outstanding loan from institutional sources (bank, co-operative society).  As per the Agriculture Census, 2015-16, the total number of small and marginal farmers’ households in the country stood at 12.56 crore which makes up  86.1% of the total holdings. As in the Situation Assessment Survey of Agricultural Households by the National Sample Survey Office (NSSO), the share of  institutional loans  rises with an increase in land possessed. This shows that the bulk of subsidized agri -credit is grabbed by big farmers and agri-business companies .

19. What are the reasons A loose definition of agri -credit  has led to the leakage of loans at subsidized rates to large companies in agri-business. The RBI had set a cap that out of a  bank’s overall adjusted net bank credit, 18% must go to the agriculture sector,  and within this, 8% must go to small and marginal farmers and 4.5% for indirect loans,  bank advances routinely breach the limit. A review by the RBI’s internal working group in 2019 found that in some States,  credit disbursal to the farm sector was higher than their agriculture gross domestic product (GDP)  and the ratio of crop loans disbursed to input requirement was very unevenly distributed.  This shows the d iversion of credit for non-agriculture purposes. One reason for this diversion is that  subsidized credit disbursed at a 4%-7% rate of interest  is being refinanced to small farmers, and in the open market at a rate of interest of up to 36 %.

20. Problems regarding Agricultural credit in India Insufficiency : In spite of the expansion of rural credit structure, the volume of rural credit in the country is still insufficient as compared to its growing requirement arising out of the increase in prices of agricultural inputs. Inadequate amount of sanction : The amount of loan sanctioned to the farmers by the agencies is also very much inadequate for meeting their different aspects of agricultural operations. Considering the amount of loan sanctioned as inadequate and insignificant, the farmers often divert such loan for unproductive purposes and thereby dilute the very purpose of such loan. Lesser attention of poor farmers : Rural credit agencies and its schemes have failed to meet the needs of the small and marginal farmers. Thus, lesser attention has been given on the credit needs of the needy farmers whereas the comparatively well-to-do farmers are getting more attention from the credit agencies for their better creditworthiness. Inadequate institutional coverage : In India, the institutional credit arrangement continues to be inadequate as compared to its growing needs. The development of co-operative credit institutions like Primary agricultural credit societies, land development banks, commercial banks and regional rural banks, have failed to cover the entire rural farmers of the country. Red tapism : Institutional agricultural-credit is subjected to red- tapism . Credit institutions are still adopting cumbersome rules and formalities for advancing loan to farmers which ultimately force the farmers to depend more on costly non-institutional sources of credit .

21. Solutions To monitor the taccavi loan offered by the Government in a serious manner. Co-operative credit societies should be organised to make it efficient and purposeful for delivering the best in terms of rural credit. Moreover, these societies may be transformed into a multi-purpose society with sufficient funding capacity. Middlemen existing between credit agencies and borrowers should be eliminated. Reserve Bank of India should arrange sufficient fund so that long term loans can be advanced to the farmers. Power and activities of the Mahajans and moneylenders should be checked so as to declare an end to the exploitation of farmers. The banks should adopt procedural simplification for credit delivery through rationalisation of its working pattern. In order to check the fraud practices adopted by the farmer, for getting loans from different agencies by showing same tangible security, a credit card should be issued against each farmer which will show the details about the loans taken by them from different agencies. Credit should also monitor the actual utilisation of loans by developing an effective supervisory mechanism .

22. The way forward is  to empower small and marginal farmers  by ‘giving them direct income support on a per hectare basis rather than hugely subsidizing credit. Streamlining the agri -credit system  to facilitate higher crop loans to farmer producer organizations, or the FPOs  of small farmers against commodity stocks can be a win-win model to spur agriculture growth’. With mobile phone penetration among agricultural households in India being as high as 89.1%, efforts to improve institutional credit delivery through technology-driven solutions can reduce the extent of the financial exclusion of agricultural households There is a need to reforming the land leasing framework and creating a national-level agency to build consensus among States and the Centre concerning agriculture credit reforms .