All is not well with agricultural credit in India. The numbers on paper are impressive. There has been a steady rise in institutional finance to the sector since 2003-04, and in 2009-10, the agricultural credit target of Rs 3,25,000 crore was even exceeded, with actual disbursement being around Rs 3,66,919 crore. But nearly half the public and private banks failed to meet their respective targets in the year. It is worth noting that the slippage is solely in meeting the goals of direct agricultural lending, where the loans go straight to the farmers for crop production and other farming-related activities. Indirect lending for supportive infrastructure, such as warehouses, cold stores, irrigation, rural electrification and the like, which is also treated as agricultural credit, is seldom a problem for the banks and this is what has gone up. Separating out direct and indirect lending tells a clearer tale. There is some evidence that suggests that incremental credit is, in fact, going to the same set of already credit-worthy farmers, with new borrowers still struggling to secure credit. The government’s loan waiver schemes and concessional interest rates for the farmers who repay their loans regularly have also tended to benefit farmers who already have access to credit. The loan waiver schemes have, on the other hand, discouraged banks from lending to new borrowers. Though the government’s move to offer 1 per cent interest subvention last year — raised to 2 per cent this year — for timely repayment of farm loans was meant chiefly to undo this damage to the repayment culture, it actually ended up further increasing the flow of credit to the non-defaulting farmers.
Most of these farmers are, predictably, medium and large farmers with multiple sources of income, not relying wholly on risk-prone crop production. The genuinely needy farmers, who should actually be getting relatively cheaper bank loans that would enable them to liberate themselves from the stranglehold of moneylenders, are often left out. This, indeed, defeats the very purpose of augmenting credit flow to the farm sector. Little wonder then that suicides by farmers indebted to usurious moneylenders still continue. The government recently informed Parliament that some 1,148 farmers took the extreme step of ending their lives in 2009-10 in various parts of the country, including states like Maharashtra and Punjab, where the banking network is fairly well developed in rural areas. On the positive side, the incidence of suicide among indebted cotton growers has come down, with the problem restricted mainly to poorer food crop growing farmers. The credit for this good news, however, goes to the better availability of pest-protected transgenic Bt-cotton seeds, which have reduced crop failures, and not so much to improved access to institutional finance. The recent crisis in micro-finance would only make matters worse from the point of view of farmers seeking access to credit. Given all the talk of financial inclusion, both central and state governments must come forward with credible policies that ensure access to finance for the small farmer.
