(The Gist of Kurukshetra) INSTITUTIONAL CREDIT FOR AGRICULTURE [FEBRUARY-2019]

(The Gist of Kurukshetra) INSTITUTIONAL CREDIT FOR AGRICULTURE

Introduction

Agriculture including crop husbandry, animal husbandry (dairy, poultry, etc.), fisheries, forestry, agro processing, etc., provide the underpinning for our food and livelihood security. Agriculture provides significant support for economic growth and social transformation in the country.
The total food-grain production in India has Production of major agricultural crops witnessed a phenomenal increase, especially over the last decade. It has increased from 234.50 million tonnes in
2008-09 to a record 284.83 million tonnes in 2017-18.
Production of commercial crops like Oilseeds, Cotton, Jute and Sugarcane and horticulture crops like Tomato, Onion and Potato also witnessed steady growth, during the same period.

Investments in Agriculture

Besides production, such investments also helps In increasing agricultural incomes, mitigating poverty and enhancing food security. In 2014-15, the private Gross Capital Formation in Agriculture [GCFA] accounted for 83% share, while that of public GCFA was 15%. Further, a push in public GCFA was seen to induce higher private GCFA.

Role of institutional credit in private GCFA

As per AIDIS 2012-13, nearly 86% of the farm capital investment in India is undertaken with institutional/non-institutional sources of funds. While the farmers' dependence on borrowings for investment is more than 50% across all States, it is relatively higher and in excess of 90% in developed States like Andhra Pradesh, Kerala, Tamil Nadu, Punjab, Karnataka, Maharashtra and Madhya Pradesh. Further, at the all-India level, the share of such borrowings from institutional sources is estimated to be around 63%.

Flow of Institutional Credit for Agriculture

India had adopted the multi-agency approach to purvey rural credit, since nationalization in the late 1960s. A large number of formal agencies like the Co-operative Banks, Commercial Banks and the Regional Rural Banks were actively involved in providing bank credit for agriculture and its allied activities. Even Non-Banking Financial Institutions [NBFCs], Micro Finance Institutions [MFIs] and Self Help Groups [SHGsl were also
In the subsequent annual budgets, GOI set targets for institutional credit to agriculture to ensure flow of adequate bank funds to this sector. Since then, all banks, put together, have been consistently surpassing the targets set by GOI in so far as credit flow to agricultural sector is concerned.
Further analysis of the agricultural credit flow based on tenure of loans [short-term availed mainly for crop cultivation, a.k.a. Crop Loans; and medium/long term mainly for investment activities in agriculture] reveals an interesting picture.
The decreasing trend observed in share of MT/LT agricultural loans till 2012-13 has seen a welcome reversal and its share has steadily gone up to a high of 35.60% in
2017-18. This is encouraging, especially from the point of view of private capital investments in agriculture and allied activities like farm mechanization, minor irrigation structures including pump-sets, land development works, orchards, farm ponds and other water harvesting structures, animal husbandry, fisheries, etc.

How the different agencies contributed to agricultural credit flow?

Amongst the agencies, RRBs exhibited the highest CAGR, while the Co-operative Banks reported CAGR of nearly 10%.On analyzing inter-se share, it is seen that Commercial Banks have consistently agricultural loan accounts financed by Banks. On this count also, there has been a steady and appreciable growth, across agencies, except Co-operative Banks.

Coverage of Small and Marginal Farmers

Providing timely and affordable credit to this resource-constrained group is the key to attaining inclusive growth. The good news is that the share of small and marginal farmers in loan accounts as well as credit flow have improved, of late. Small and Marginal Farmers accounted for about 72% of agricultural loan accounts and 50% of the agricultural credit flow in 2016-17, up from 63% and 44% earlier. Loan amount per account has also seen improvement, across all categories of farm holdings. It means that there has been both widening (more people getting credit) and deepening (same people getting more credit) of institutional credit flow for agriculture, in recent years.

Way Forward

Over the last so many years, key indicators like agricultural land use, area under cultivation and production of various crops, production and use of agricultural inputs, all have shown an impressive growth, contributing to increase in production of food grains and flow of institutional credit.
Our Gross Cropped Area (GCA) which was only 138 mha in the early 1950s (meaning only about 15 mha were double cropped then), steadily increased to about 185 mha by 1991, and has reached around 198 mha in the last few years.