Slashed NABARD allocation a lifeline cut short for Karnataka farmers

The central government, in the fiscal year 2024-2025, has significantly reduced NABARD’s short-term (seasonal agriculture operations) (ST-SAO) allocation to states. In Karnataka, the sanctioned concessional loan limit is just Rs 2,340 crore, a drastic cut from the applied limit of Rs 9,162 crore, representing a 58% decrease compared to last year.

During the just-concluded Parliament session, Union Finance Minister Nirmala Sitharaman defended this reduction in SAO, citing improvements in Priority Sector Lending (PSL) by nationalised and commercial banks to agriculture, small businesses, and weaker sections. She highlighted that the PSL shortfall dropped from Rs 2.1 lakh crore in FY 2023-2024 to Rs 1.5 lakh crore in FY 2024-2025. Considering this reduced shortfall, the allocation under various funds, including STCRCF (Short Term Cooperative Rural Credit Fund) and STRRBF (Short Term Regional Rural Bank (Refinance) Fund), was rationalised keeping in view the demand of institutions. The finance minister clarified in a written reply that the reduction in allocation to (ST - SAO) funds prompted a reduced fund allocation to Karnataka by NABARD.

She further emphasised that a shrinking PSL shortfall fund is a clear indication of banks’ improved capacity to provide loans to the sectors under PSL. She noted that Karnataka’s share in Ground Level Credit (GLC) for agriculture stood at Rs 2.07 lakh crore in 2023-2024, with a 20% year-on-year growth, and its share in the overall national agricultural credit increased from 8% to 8.15%. 

Ground realities ignored

However, this explanation by the FM overlooks the harsh ground realities in underserved rural regions. The cooperative banks and primary agricultural credit societies (PACS) have historically ensured that small and marginal farmers can access affordable, short-term credit in the country in general, and Karnataka in particular. This credit is essential for purchasing seeds, fertilisers, and other inputs at the start of every agricultural season.

Karnataka, with its robust cooperative sector, boasts a total of 45,926 cooperative societies across sectors, including 6,040 PACS. 

For FY 2024-2025, the Karnataka State Cooperative Apex Bank, along with district cooperative banks and PACS, planned to disburse Rs 25,000 crore in short-term loans to 35 lakh farmers. In the previous year, short-term loans worth Rs 22,902 crore were disbursed.

Indeed, the PSL credit distribution by commercial banks and nationalised banks remains concentrated in urban areas with better banking infrastructure, leaving rural and backward districts underserved. It is a known fact that farmers in rural and backward regions always depend on cooperative societies. Small and marginal farmers in these regions, often burdened by poor rainfall, crop failures, and volatile market prices, face loan repayment challenges, impacting their credit scores. With poor credit scores, commercial banks hesitate to extend loans to them, leaving cooperative societies, PACS, and regional rural banks as their only hope for accessible and affordable credit. These institutions, however, rely heavily on NABARD’s refinance support. Without adequate funding, cooperative banks cannot meet farmers’ credit needs, pushing them towards moneylenders, who charge exorbitant interest rates. The reduction in NABARD’s funding, therefore, effectively severs a vital financial lifeline and pushes farmers into deeper distress. 

Short-term loans, often provided at zero or low interest rates, are indispensable for sustaining agricultural productivity. These loans allow farmers to purchase critical inputs and plan their cropping cycles without undue financial burden. In Karnataka, collaboration between NABARD and the state government has enabled the annual disbursement of over Rs 22,000 crore in zero-interest loans—a lifeline that cannot be compromised.

Karnataka, with the country’s second-largest arid region and a high dependence on agriculture, is particularly vulnerable to these cuts. Even if we go by the finance minister’s answer that the commercial banks increased their target, we can’t generalise it to all regions. For instance, while cash-crop farmers like floriculturists or grape growers in Belagavi or Vijayapura may get agriculture loans from commercial banks, small and marginal farmers from regions like Koppal or Raichur, where agriculture depends on rainfall, will find it difficult to get loans from them. In such a scenario, small and marginal farmers depend on cooperative societies for credit.

Before slashing NABARD allocations, the Union government must analyse
PSL credit distribution to address regional disparities and ensure equitable access to credit for aspirational districts. Short-term loans must be prioritised over PSL targets for commercial banks to safeguard the livelihoods of small and marginal farmers.

The interim report of a high-level committee constituted by the Supreme Court was reported to have revealed that farmers solely reliant on agriculture earn a meagre Rs 27 per day. Denying them easy access to credit amounts to adding insult to injury, exacerbating their financial woes.

(The writer, a former IAS officer, is a Congress Lok Sabha member from Raichur)