While agricultural credit has risen manifold, that to small and marginal farmers has actually fallen.
Incredible as it may sound, the fact is that while the overall flow of institutional credit to agriculture has increased manifold on paper, the actual availability of finance to farmers (especially small and marginal ones) has dwindled, increasing their reliance on moneylenders. This is mainly due to the mindless broadening of the definition of agricultural credit which allows banks to lend more to relatively-high credit-worthy sectors while still claiming to have met targets for agricultural advances. The small and marginal farmers, who constitute nearly 84 per cent of the total farming community, are gradually being eased out of the institutional credit sector.
This has been revealed in the detailed analysis of institutional/bank credit to agriculture carried out by Consortium of Indian Farmers Association (CIFA). This study cites the findings of ‘The Situation Assessment Survey of Farmers’ (2003) to support the contention that the flow of bank credit to small and marginal farmers has declined perceptibly over the years.
The survey showed that small and marginal farmers took more loans from non-institutional sources (read moneylenders) than did large cultivators. While nearly 57.6 per cent of those owning less than 0.4 hectares (one acre) of land took loans from non-institutional sources, only 33 per cent of farmers holding above two hectares (5 acres) relied on these sources.
The discrimination by banks against small and marginal farmers comes out more starkly when viewed in terms of the proportion of small and marginal farmers in the total number who are getting agricultural loans. In 1990, prior to the initiation of economic reforms, as many as 58.70 per cent of all agricultural loans had a value below Rs 25,000 each (such loans are normally made to small and marginal farmers); this number dropped to 52 per cent by 1995, and further fell to 23.50 per cent by 2003. By 2006, the proportion of such loans nosedived to merely 13.30 per cent. The total decline since 1990, therefore, work out to a huge 75 per cent.
In contrast, the number of large loans, in excess of Rs 1 crore (such loans are made to non-farmers covered under the priority sector agricultural lending), rose four-fold during this period.
Giving details of how the profile of agricultural loans under the priority sector credit was altered to the detriment of needy farmers, the CIFA paper points out that till 1993 only ‘direct finance’ to agriculture was included under mandatory 18 per cent priority sector lending; subsequently even ‘indirect credit’ was added to it.
From 1994 onwards, bigger loans ranging from Rs 5 lakh to Rs 1 crore, sanctioned to agriculture’s allied activities (largely commercial ventures) were also included in permissible indirect finance to agriculture.
These included, among others, the dealers of cattle and poultry feed, drip and sprinkler irrigation systems and farm machinery, even state electricity boards, agri-clinics and agri-business centres.
What is more, even subscription to the bonds issued by the Rural Electrification Corporation for financing its programme for energising pump sets in rural as well as semi-urban areas and loans to cold storage units were deemed indirect finance to agriculture. As a result, the share of such ‘other types of indirect finance’ in total indirect credit to agriculture surged from 56 per cent in 1999 to as high as 76 per cent by 2006.
Worse still, to curtail access of even ‘direct finance’ to small and marginal farmers, banks were allowed to show one-third of their loans to corporate houses, partnership firms and institutions for agriculture’s allied activities (such as poultry, fishery and dairy) as direct finance to agriculture. The rest of the credit to such sectors was deemed as ‘indirect credit’ to agriculture.
Thus, indirect finance to agriculture has expanded since the late 1990s at an annual rate of 33 per cent, to artificially inflate the numbers concerning total flow of institutional credit to agriculture.
These facts, obviously, bear ample testimony to the fact that most of the changes in the agricultural credit structure in the past two decades have gone against the interests of small and marginal farmers who need cheaper institutional credit more than others.
There is, therefore, an urgent need for a re-look at the entire gamut of issues concerning agricultural credit and fix realistic norms for funding this sector.
