[Editorial Analysis] In agri-credit, small farmers are still outside the fence

Mains Paper 3: Economy
Prelims level: National Bank for Agriculture and Rural Development
Mains level: Marketing of agricultural produce and issues and related constraints; e-technology in the aid of farmers.


• The agriculture reforms have again occupied centre stage not just in the minds of the politicians but also policymakers.
• To enable small farmers to diversify their crops or improve their income, they must have access to credit at reasonable rates of interest.
• India is a country of Small and marginal farmer but policymaker left out most small farmers in agriculture credit, for indirect loans, and direct credit with many irregularities.
• Where is the credit and subsidy going and are they really benefiting the farmers, to improve effective institutional credit delivery then Technology as a solution.

Agricultural Subsidies in India:

• Annual central government subsidies to farmers would be of the order of Rs. 120,500 crores as the sum of fertilizer subsidies (Rs. 70,000 crores, 2017/18), credit subsidies (Rs. 20,000 crores, 2017/18), and crop insurance subsidies (Rs. 6500 crores, 2018/19) and expenditures towards price support (Rs. 24,000 crores estimated for 2016/17).
• Annual State government subsidies are almost of an equal amount of Rs. 115,500 crores to as the sum of power subsidies (Rs. 90,000 crores, 2015/16), irrigation subsidies (Rs. 17,500 crores, 2013/14), and crop insurance subsidies (Rs, 6500 crores, 2018/19). In addition, in the year 2017/18, state governments announced loan waives totalling to Rs. 122,000 crores. Overall farm subsidies amount to 2-2.25% of GDP.
• On February 1,2020, Budget day, the Union Finance Minister will again set a new agricultural credit target for 2021-22. In 2011-12, the target was Rs. 4.75-lakh crore; now, agri-credit has reached the target of Rs. 15-lakh crore in 2020-21 with an allocated subsidy of Rs. 21,175 crore.

Most small farmers left out:

• As per Agriculture Census 2015-16, the average size of operational holding has declined to 1.08 hectare in 2015-16 as compared to 1.15 hectare in 2010-11. The small and marginal holdings (10 ha) are merely 0.57% of the total land holdings.
• 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.
• 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 with 18% rate of interest, benefit large farmer only.
• The lowest land holding (up to two hectares) getting only about 15% of the subsidised outstanding loan from institutional sources (bank, co-operative society).
• The credit beneficial of 79% households belonging to the highest size land holder 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 only 12.56 crore.
• 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.

Many irregularities:

• RBI 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.
• Some Examples are show irregularities 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%. Subsidized credit.
• Appraisal and accounting irregularities affecting a segment of the Association’s lending portfolio also increases irregularities in farm credit.
• The volume of rural credit in the country is still insufficient as compared to its growing requirement arising out of increase in prices of agricultural inputs.
• Rural credit agencies and its schemes have failed to meet the needs of the small and marginal farmers.
• The problem of over-dues in agricultural credit continues to be an area of concern. The recovery of agricultural advances to various institutions is also not at all satisfactory.

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.
• The 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.
• With technology farmers have not to produce or the certified land record copy from the revenue department, which is much time consuming.

Other solutions:

• The according to RBI suggestion 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.
• 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’.
• The 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.
• Procedural simplification for credit delivery has been made (as per R.V. Gupta Committee Report) through rationalization of internal returns of banks.
• The Dalwai committee report on the issue of doubling farmer’s income, has also pitched for placing farm marketing in the Concurrent List to enable the Centre to revamp agricultural mandi’s, improve their functional efficiency and expand the rural marketing infrastructure


• A recent report (OECD, 2020) estimates the taxes to be larger than the aggregate of input subsidies. These estimates can, however, be disputed.
• India is 47 a large country in international trade and a simple comparison of domestic prices with world levels is not an adequate guide to the extent of taxation.
• It is not clear whether the depressed domestic prices are due to policy or because of high transport costs from the hinterland to the ports. This is relevant for a large continental economy such as India.
• For the 141 million workers in agriculture who own no land and for the majority of 118 million cultivators that own less than 1 hectare of land, incomes from farming will continue to be low and precarious, no matter how much we spend on subsidies.

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