Despite the substantial increase in agricultural credit in the past few years, a few states such as Tamil Nadu, Punjab and (pre-division) Andhra Pradesh continue to corner a large part of it, while most poor farmers in Odisha, Chhattisgarh, Jharkhand and Bihar are still deprived of credit for purchase of basic farming inputs. This scenario has undermined the efficacy of the stepped-up farm credit in boosting agricultural productivity.
And tiny states like Puducherry and Delhi are at the top when it comes to farm loans availed per hectare, with R1 crore and R65 lakh, respectively, against just R9,780 in Assam and R16,800 in Chhattisgarh (see table). Though high per-hectare loan figures for the city states raises the suspicion of misuse, analysts said it is largely explained by the inclusion of “agriculture infrastructure” like warehouses, market yards, silos and cold storage units in the list of activities eligible for farm credit. Without being able to fund these facilities under their agriculture credit portfolio, banks could not have met their 18% of net bank credit target for the farm sector, they said.
“More credit to saturated areas will not contribute much to growth in agriculture and increase in productivity,” said Ramesh Chand, member, Niti Aayog. There is an urgent need for capital investment and short-term credit to farmers in states like Odisha, Assam, Jharkhand and Chhattisgarh, he said.
As saturated states got most of the credit without major additional contribution to farm output, the agriculture and allied sector growth faltered. Even though farm credit rose 16% in FY15, the agriculture sector growth fell 0.2%, also because of a bad monsoon.
Analysts feel the situation wouldn’t have been that bad if adequate loans for purchase of fertilisers, quality seeds and farm equipment had been provided to farmers in eastern parts of the country. Of Rs 8.45 lakh crore farm credit disbursed in FY15, Tamil Nadu’s share was 12% while Punjab’s share was nearly 9%. As the government is likely to target a farm-sector growth of 4% over a 15-year horizon, flow of farm credit to needy states must form an essential part of the strategy.
“Banks should ensure that certain fixed shares of farm credit flows to the deprived states. This can be done by looking at the share of different crops among states. The amount of credit should not be less than two-thirds of a state’s share in crop output,” Chand said. For example, if the share of Odisha in agricultural output is 10%, then its credit share should not be less than 7%. Observing the imbalance in farm credit growth, the finance ministry has recently asked the public sector banks to take effective steps to increase flow of loans to eastern, northeastern and central regions of the country. Farm loans (crop loan and term loan) are pegged at Rs 10 lakh crore in FY18, up 11% from FY17.
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Since saturated states don’t actually need the amount of credit they are currently taking, analysts believe such loans are being diverted for consumption purpose, often leading to indebtedness.
According to an analysis done by former Commission for Agricultural Costs and Prices (CACP) chairman Ashok Gulati in April 2016, 30-40% of the funds allocated under the interest subvention scheme for farm credit gets diverted to non-agricultural usage.
The interest subvention scheme was introduced in FY07 with a view to helping farmers with cheaper credit for crop loans. It provided interest subvention at 2% to banks for making crop loans available to farmers at 7%. Farmers are provided with a 3% interest subvention for short-term crop loans up to Rs 3 lakh on prompt repayment of the loan. Thus, farmers have to effectively pay only 4% as interest for the said crop loan.