Heavy inflow, but farm credit seldom reaches fields

There are tall claims on farm credit front. In fact, there is enough evidence to show a heavy funds flow to agriculture and the existence of a wide network of supply channels. Official data make one believe that the farmers are getting enough credit.

The government, way back in its 2004 Budget, announced its goal of doubling the level of agricultural credit within three years; but, it happened in just two years. Every budget speech thereafter bragged on higher and higher targets of credit.

The targets in the last three years – 2012-13 to  2014-15 – were really impressive at Rs 5.75 lakh crore, Rs 7 lakh crore and Rs 8 lakh crore respectively. The current year, 2015-16’s target was still higher at Rs.8.5 lakh crore which, too, in all likelihood is going to be surpassed.

These targets account for about 7 per cent of the Gross Domestic Product (GDP) which is more than half of agriculture’s contribution to the GDP. In other words, the credit input, from institutional sources alone, is half of the agricultural output.

The institutional arrangements and policy frameworks are very impressive too; in fact, they look saturate. In March 2014, a total of 151 commercial banks (including  Regional Rural Banks) had 1,17,218 branches all over India. Of them, 45,177 were in rural areas. Similarly, there were 1,081 offices of the State Cooperative Banks, 13,655 offices of District Cooperative Banks and 93,488 Primary Agricultural Societies (PACs) by 2012-13.

The policy making and implementation arrangements are not weak either. The RBI fixes targets to fund agriculture; it has been 18 per cent of the adjusted net bank credit – a fair share indeed! There are state level bankers’ committees to fix and monitor the bank-wise targets. Also, the Nabard, the apex bank has the mandate to ensure agriculture and rural development in the country, as its very name suggests.

The truth, despite all this, is that farmers are not getting enough support. The Commercial Banks’ credit to agriculture as per the latest RBI data aggregated to Rs 5.81 lakh crore by March 2013. This was equal to 10.52 per cent of the total bank credit, much less than the 18 per cent target. In fact, banks have never been serious about achieving the target. They have officially found an escape route since 1996 when they were asked to invest, their shortfall in the priority sector target, in the Rural Infrastructure Development Fund (RIDF).

More worrisome, even this low 10.52 per cent is not entirely reaching the rural areas. The rural areas receive only Rs 2.48 lakh crore, that is 4.49 per cent, of bank credit. It may look strange, but the remaining 6.03 per cent (a high 57 per cent of the farm credit) has gone to semi-urban, urban and metropolitan agricultures.

Again, the small, marginal and tenant farmers who constitute the overwhelming majority of the farming community in India are not getting their fair share in the credit. As per the 2010-11 agricultural census, Small and Marginal farmers with 7.11 crore holdings account for 85.30 per cent of the total 13.83 crore holdings.

They operate on 7.11 crore hectares (44.55 per cent of the total 15.96 crore hectares operated in the country). And tenants are supposed to be 40 per cent of actual cultivators. These groups do not get loans proportional either to their holdings or area operated, or equal to their contribution to the GDP.

The small loans, as per RBI classification, with amounts not exceeding Rs 2 lakh per capita, aggregate to Rs 2.81 lakh core, outstanding by March 2013. That sum was equalled to 5 per cent of the total credit supplied by the banks. It should be noted that the entire amount, under this segment – below Rs 2 lakh – need not necessarily have gone to the small and marginal farmers.

The average loan amount of the small farmers is found to be about Rs 60,000 and that of the marginal farmers less than Rs 50,000, as per Nabard’s annual report of 2012-13. So, their actual share could be presumed to be much below 5 per cent.

Not only the commercial banks, but the other specialised agencies are failing in their duty. The cooperatives, which were known to be synonymous with institutional credit before the bank nationalisation, have lost their relative importance; their share in farm credit has come down from 62 per cent in 1992-93 to 17 per cent by 2013-14.

Change in role of RRBs

Similarly, the Regional Rural Banks (RRBs) which came into being in 1975 with the sole mandate of financing only to the weaker sections have undergone a drastic change whereby they have lost their character of being called as ‘social banks’,transforming into pure commercial banks. Their lending to the poor, let alone agriculture, which used to be 100 per cent when these banks were set up, has later been reduced to just 15 per cent. The RRBs’ share in farm credit has been hovering around 10 per cent.

The profit earning motive has overtaken their social banking goal. Their profits for the five year period 2008-09 to 2012-13 were aggregated to Rs 12,589 crore. Apart from this, the government got Rs 9,318.27 crore in terms of income tax from these so-called poor people’s banks.

The profits from these banks means losses to the clientele group to that extent. The recent amendment of the RRBs Act, among other things, has facilitated their part (49 per cent) privatisation.

Add to this, the recent change in the priority sector norms, inter alia, have removed the distinction between the direct and indirect agricultural credit and facilitated the way for sanctioning more loans to big farmers and the corporates.

All these trends suggest distancing the farmers from accessing institutional credit when their farming is in a deep crisis. The government has no choice but to halt this if the food and employment securities are its real concerns.

(The writer is Member, sub-committee on Agriculture Investment, Credit Flow and Farmers’ Indebtedness of the Commission on Inclusive and Sustainable Agricultural Development of Andhra Pradesh)