1. Credit for agricultural households: Growing inequity

Credit for agricultural households: Growing inequity

Policy and institutional interventions during 2002-12 were more favourable for large farmers as compared to small and marginal ones

By: | Published: August 25, 2015 12:23 AM

Over the last decade, following reports of growing agrarian indebtedness to informal sources and the related distress, there was an emphasis on reviving the supply of agricultural credit. Indeed, the period 2000 onwards has seen maximum policy and institutional interventions such as the announcement of a comprehensive credit policy in 2004 to double the volume of credit to agriculture over a period of three years. Close on its heels came the debt waiver scheme in 2008 to address the issue of indebtedness of farmers covering 3.69 crore small and marginal farmers and 0.6 crore other farmers; introduction of an interest rate subvention scheme; financial literacy and inclusion drive; recapitalisation of cooperatives and regional rural banks and so on.

All these efforts have contributed, both explicitly and implicitly, to the reversal of the slowdown trend in agricultural credit in the period after 2000.

Between 2002 and 2011, agricultural credit from commercial banks grew by 17.6% per annum, which was significantly higher than the growth rate recorded for the 1990s. Similarly, there was also a significant increase in the number of rural branches of commercial banks after 2006.


Despite the slew of measures taken to improve access of farmers to institutional credit, the latest situation assessment survey of farmers shows that, in 2012, about 51.9% of agricultural households were able to borrow from one agency or the other. In other words, about 48% of agricultural households could not borrow. Compared to this, in 2002, the proportion of agricultural households who could avail the credit was 48.6%. Therefore, there was only a slight decrease in the proportion of cultivator households who could not obtain any loan between 2002 and 2012.


The data on extent of indebtedness across farm size classes further reveals that the proportion of borrowing of agricultural households increases (chart 1) as one moves from small and marginal land holdings (i.e. having land not more than 2 hectares) to large size holdings (i.e. more than 10 hectares of land). For instance, in 2012, in the category of marginal and small farm size agricultural households (constituting around 87% of total agricultural households), only 48% were able to avail the loan from one source or the other, whereas in the category of medium and large size farmers (having land more than 4 hectares), more than 76% were able to borrow.

Besides these disquieting trends, inequality across farm size classes with respect to proportion of households able to borrow has also widened between 2002 and 2012, indicating that policy and institutional interventions during the period turned out to be more favourable to large farmers as compared to small and marginal farmers.

Regarding the source of credit flow, the latest All India Debt and Investment Survey by the NSSO shows that non-institutional agencies still accounted for as much as 36% of outstanding dues in 2012-13, an increase from 33.7% in 1990-91. Upsetting further, between 2002 and 2012, institutional sources have become major sources of finance for large size farmers (more than 10 hectares of land) and met around 79% of their credit requirement in 2012—this diversion occurred mainly at the cost of near landless/tiny holdings whose 85% of credit requirements are now being met by non-institutional sources, mainly by professional moneylenders.

The rates of interest charged by non-institutional sources are much higher than those charged by institutional sources. As much as 74% of the outstanding dues from non-institutional sources attracted interest rates of more than 15% in 2012, whereas the corresponding figure for institutional sources was only 10%.

Further, outstanding debt at rates above 30% was as much as 34.1% for non-institutional sources and only 1% for institutional sources.

The survey result shows that the average loan outstanding per cultivator in 2012 is Rs 47,000 ranging from Rs 31,100 for landless farmers to R2,90,300 for farmers having 10 hectares or more of land. Although at the aggregate level the average loan outstanding has increased by over three-and-a-half times from Rs 12,585 in 2002, nonetheless the credit outstanding per account for big farmers increased at a much higher rate compared to near landless and marginal farmers—resulting in increase in divergence in credit outstanding per account of big cultivators and marginal cultivators in 2012 (chart 2). The observed pattern indicates that there has been an expansion of credit supplied to big cultivators/farmers.

The information on finance to farmers according to size of holdings by RBI confirms the above findings of situation assessment surveys. The analysis of the share of loan accounts held by marginal, small and big cultivators under direct finance during 1980-81 to 2011-12 shows a decline in the share of loan accounts held by marginal cultivators in the 1990s, a trend that more or less continued up to 2010. On the other hand, the share of loan accounts held by big farmers rose from about 25.4% in 1991 to 30% in 2001 and further 35.9% in 2010.

Therefore, the policy and institutional interventions during the period 2002 to 2012 turned out to be far more favourable for large farmers as compared to small and marginal farmers, which resulted in further widening the inequality across the farm size classes with respect to access to credit as well as financial institutions.

The author is faculty, National Institute of Bank Management, Pune. Views are personal

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