Every year, the Centre increases its lending target for farmers. From ₹9 lakh-crore in 2016-17, it increased to ₹11 lakh-crore in 2018-19. But how of much this actually goes to the farmers in need? Official numbers say 50 per cent.

In 2018-19, for instance, bank lent ₹6.26 lakh-crore to small and marginal farmers, says NABARD. But with small and marginal farmers comprising a significant proportion of the total number of cultivators in the country, should we be happy about only 50 per cent of the total credit going to them? In some large agri States such as Bihar, Chhattisgarh, Jharkhand and West Bengal, penetration of institutional credit is, in fact, very poor.

On the other hand, in Kerala, Tamil Nadu, Telangana and Karnataka, agri-credit is higher than agri-GDP (average for 2015,2016 and 2017, as per the Handbook of Statistics on Indian States), which means farm loans are being diverted for purposes other than agriculture. The loan waivers announced by different political parties during election years have only done more bad than good. The gross NPA in the agriculture sector is as high as 8.44 per cent (as of March 31, 2019).

Disproportionate lending

While there has been a marked improvement in lending to the agri-sector in the past 30 years, especially post the introduction of Kisan Credit Card in 1999, there is still a lot to be done. About 30 per cent of households in rural India are still dependent on non-institutional sources for their credit needs. This includes tenant farmers, share croppers and landless labourers who do not have land or other assets to get credit. Also, those farmers engaged in allied agricultural activities have been neglected in lending. Data from the RBI and the Ministry of Statistics and Programme Implementation (MOSPI) show that even as allied activities — livestock, forestry and fisheries — contributed about 40 per cent to the agricultural output in 2016, their share in total agri-credit was only 6-7 per cent.

The credit States receive is disproportionate to how much they require. Based on the ratio of crop loan-to-input, RBI data show that some States get significantly high credit against their input-cost requirement. This includes Andhra Pradesh (7.5 times), Kerala (six times), Goa, Telangana, Tamil Nadu, Uttarakhand and Punjab. On the other hand, States including Jharkhand, West Bengal, Chhattisgarh, Bihar, Odisha, Maharashtra, Uttar Pradesh and Rajasthan have not been getting enough credit.

Suggestions

An RBI working group on agricultural credit has given suggestions to improve the situation. It has recommended digitisation of land records, making it easy for banks to electronically access and create charges on on the land. While the Centre started the computerisation of land records in 1988-89, many States including Arunachal Pradesh, Chandigarh, Jammu and Kashmir, Kerala, Manipur, Meghalaya, Mizoram and Nagaland have so far digitised only 50 per cent of their records.

The panel further recommended building a legal framework for land leasing, so that tenant farmers, too, get to benefit from institutional credit. The panel also suggested that, to make it easier for banks to give credit for allied activities, the priority-sector lending guidelines should provide a separate definition for small, marginal farmers who want to borrow ₹2 lakh for allied activities.

It has recommended that the bank credit sub-target for small and marginal farmers be increased from the existing 8 per cent of ANBC (adjusted net bank credit) to 10 per cent, with a roadmap of two years. It further said that, the government in partnership with the States, should set up a credit-guarantee fund for the agriculture sector, on the lines of the credit-guarantee schemes implemented in the MSME sector.

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