In Agri-credit, Small Farmers are still Outside the Fence

Context: Due to efforts of the Centre, the States and the Reserve Bank of India (RBI), the volume of credit has improved over the decades; however,  its quality and impact on agriculture have deteriorated.

Issues with Agri-credits in India:

• Inefficient targeting: While the agriculture credit increased by 500% in the last ten years, it has not reached even 20% of small and marginal farmers (having 86.1% of the total holdings).
  • Agricultural households with small landholdings (up to two hectares) receive only 15% of the Subsidised Institutional Credit (SIC).
  • According to the National Sample Survey Office (NSSO) survey, a bulk of subsidised agri-credit is grabbed by big farmers and agri-business companies.
• Leakage of subsidised loans: to large companies due to a loose definition of agri-credit. RBI has mandated 18% of the net adjusted credit to the agriculture sector, which is often breached
  • For e.g., 53% of the agriculture credit provided by the National Bank for Agriculture and Rural Development (NABARD) to Maharashtra was allocated to Mumbai city, where there are no agriculturists, only agri-business.
  • According to RBI, in some states, credit disbursal to the farm sector was higher than their agriculture Gross Domestic Product (GDP)
    • Examples: in Kerala (326%), Andhra Pradesh (254%), Tamil Nadu (245%), Punjab (231%) and Telangana (210%).

Way forward:

• Provide direct income support on a per hectare basis: to empower small and marginal farmers.
• Streamlining the agri-credit system: to facilitate higher crop loans to Farmer Producer Organisations (FPOs) of small farmers.
• Use of technology-driven solutions: to improve institutional credit delivery leading to more financial inclusion of agricultural households. (taking advantage of mobile penetration of up to 89%)
• Reform land leasing framework
• Creating a national-level agency to build consensus among States and the Centre concerning agriculture credit reforms, to fill the gap and reach out to the farmers.