Agriculture Credit and Institutional role in Agriculture

Forms of Agriculture Credit

• Scheduled Commercial Banks are the largest credit providers followed by Cooperatives and Regional Rural Banks.
• Collateral Free Agri Loan has been increased to 1.6 lakhs.
• Crop loan up to Rs. 3 lakhs at 7% Rate of Interest and 3% Interest subvention for those who pay loan on time.

Kisan Credit Card, 1998-99

• KCC is for all type of credit needs in Agri and allied sector.
• It is implemented by all cooperative Banks, RRBs and Public sector commercial banks. Now it is under Pradhan Mantri Jan Dhan Yojana.
• RBI monitors it for SCBs and NABARD monitors the scheme with respect to Cooperative Banks and RRBs. Now Cooperative sector is under RBI.
• KCC Loan is fixed on crop is sown and area under cultivation.
• Any number of withdrawals and repayments are permitted in ATM-enabled debit cards.
• Each withdrawal is to be repaid within 1 year and the Card is valid for 3 - 5 years.
• They are covered under National Crop Insurance Scheme (includes accidental death/ disability).
• Budget 2018-19 extended this provision to Animal Husbandry and Fisheries.

Agri Market Infrastructure Fund (AMIF) - NABARD

• It is a Rs. 2000 crore for development and upgradation of rural agriculture markets.
• It was announced in 2018 Budget for developing and upgrading agricultural marketing infra in the 22,000 Gramin Agricultural Markets (GrAMs) and  585 APMCs.
• At present, GrAMs are being developed by MGNREGA Funds. Scheme is demand driven.
• It will be created with NABARD and will provide the state/ UT governments subsidized loans for their proposal for developing marketing infrastructure in 585 APMCs and 10,000 villages.
• States can access AMIF for innovative integrated market infra projects, including through PPP.
• Govt launched ‘Grameen Bhandaran Yojana’ in 2001, which has been subsumed into “Agricultural Marketing  Infrastructure (AMI)” from 2014.

NABARD Fund of Rs. 700 crore VCF for Rural Agriculture Startups

• Until now, NABARD was contributing to other funds, but this is for the 1st time NABARD has set up a fund of its own.
• The fund has been launched by Nabventures, a subsidiary of NABARD, and has a proposed corpus of Rs 500 crore with an option to retain over-subscription of Rs 200 crore, called as the greenshoe option (over allotment option).

Small Farmers do not get Agri credit

• To enable small farmers to diversify their crops or improve their income they must have access to credit at reasonable rates of interest. But the recent study has found out this to be otherwise.
• Agri credit has been an agenda of the triad of the Centre, the States and the Reserve Bank of India (RBI) for decades.
• Unfortunately, while the volume of credit has improved over the decades, its quality and impact on agriculture has only deteriorated.
• Agricultural credit has become less efficient in delivering agricultural growth.
• Otherwise, why should over 85% of farmers’ income remain stagnant over the years?
• Any other sector which has access to a low rate of interest credit has always boomed and ballooned so much so it has created a bubble of its own.

Data

• Every year, the central government announces an increase in the target of subsidised agriculture credit limit and banks surpass the target.
• On February 1, Budget day, the Union Finance Minister will again set a new agricultural credit target for 2021-22.
• 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 crore.

The question is: where is the credit and subsidy going and are they really benefiting the farmers?

Most 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. (Prelims Pointers)
• Despite an increase in agri-credit, even today, 95% of tractors and other agri-implements sold in the country are being financed by non-banking financial companies, or NBFCs, at 18% rate of interest; the banks’ long-term loans rate of interest for purchasing of the same is 11%.
• The central bank, the RBI, has also questioned agricultural households with the lowest land holding (up to 2 hectares) getting only about 15% of the subsidised outstanding loan from institutional sources (bank, co-operative society).
• The share is 79% for households belonging to the highest size class of land possessed (above two hectares), beneficiaries of subsidised institutional credit at 4% to 7% rate of interest.
• As in the Agriculture Census, 2015-16, the total number of small and marginal farmers’ households in the country stood at 12.56 crore.

• These small and marginal holdings make up 86.1% of the total holdings.
• As in the Situation Assessment Survey of Agricultural Households by the National Sample Survey Office (NSSO), Ministry of Statistics and Programme Implementation, the share of institutional loans rises with an increase in land possessed — showing that the bulk of subsidised agri-credit is grabbed by big farmers and agri-business companies.
• A loose definition of agri-credit has led to the leakage of loans at subsidised rates to large companies in agri-business.
• Though 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.
• In 2017, 53% of the agriculture credit that the National Bank for Agriculture and Rural Development (NABARD) provided to Maharashtra was allocated to Mumbai city and suburbs, where there are no agriculturists, only agri-business. It made indirect loans to dealers and sellers of fertilizers, pesticides, seeds and agricultural implements undertaking work for farmers.

RBI audit of Credit disbursal

• A review by the RBI’s internal working group in 2019 found various inconsistencies.
• It 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. Examples are in Kerala (326%), Andhra Pradesh (254%), Tamil Nadu (245%), Punjab (231%) and Telangana (210%).
• This shows the diversion of credit for non-agriculture purposes.
• One reason for this diversion is that subsidised 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%.
• Subsidised credit should be the ‘cause for viable agriculture but, unfortunately, the agriculture sector’s performance has not been commensurate with the subsidised credit that it has received’.
• Even new farm laws have not addressed the reform in the agriculture credit system.
• The way forward is to empower small and marginal farmers by ‘giving them direct income support on a per hectare basis rather than hugely subsidising credit.
• Streamlining the agri-credit system to facilitate higher crop loans to farmer producer organisations, or the FPOs of small farmers against commodity stocks can be a win-win model to spur agriculture growth’.

Technology as a solution

• With mobile phone penetration among agricultural households in India being as high as 89.1%, the prospects of aggressive effort to improve institutional credit delivery through technology-driven solutions can reduce the extent of the financial exclusion of agricultural households.
• Farmers have been able to avail themselves of loans through mobile phone apps, says a media report.
• These apps use satellite imagery reports which capture the extent of land owned by farmers in States where land records are digitised and they grow the crop to extend the Kisan Credit Card loans digitally.
• Instant, otherwise, farmers have to produce the certified land record copy from the revenue department, which is much time consuming.
• Other steps are reforming the land leasing framework and 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 most number of small and marginal farmers.