Best Farmer of India: There will be Boom in Farm Credit flow

Yet again the discussion on the increase in credit flow to the farm sector hits the headlines. Finance Minister announced that the budget outlay for farm credit has been increased to Rs.4.5 lakh crore (20011-12) from Rs 3.75 lakh crore in 2010-11. In absolute terms the increase in the outlay for farm credit is a boon to the agriculture sector. While indirect finance to the sector is expected to support the agriculture development in terms of providing the necessary infrastructure (both physical, technological and social) and create an enabling environment for more private investment into the sector; the direct finance is expected to support the millions of small and marginal farmers in generating incomes to sustain their livelihoods. However, the data on farm credit does not appear to support these assumptions.

In the last four financial years, the growth rate of farm credit disbursed by the Commercial Banks is higher than the growth in number of loan accounts in the farm sector (see Figure A & B). Similarly, growth in the number of loan accounts of Regional Rural Banks (RRBs) is not matching with the growth in their farm credit disbursal. However, in case of Cooperative Banks the growth in number of loan accounts is higher than the growth in farm credit disbursal. What this means is, the size of the loan in case of Commercial Banks and RRBs is increasing over the last four years (see Figure C), which can be inferred as the disbursal more and more is catering to the large / corporate farmers than the small and marginal who constitute more than 78 per cent of cultivating farmers in the country. The data also communicates that the increase in quantum of credit to the farm sector is only adding to the depth than the spread of credit flow. In other words, while the additional credit earmarked in subsequent budgets by the Union Government is actually not catering to new, but deepening the pockets of the existing debtors of farm credit. Between 2000 and 2006, the total advances of a loan size of ‘more than Rs.25000’ decreased from about 35 per cent to about 13 per cent. During the same period, the advances of the loan size ‘more 25 crore’ increased from about 6 per cent to 16 per cent. On similar lines, between 1995 and 2005, the loan disbursed from urban and metro areas increased from about 16 per cent to 30 per cent.

Ever since, our country’s forayed into planned development especially the nationalization of financial institutions, it would be everybody’s guess that over the decades the share of various agencies in the debt of cultivator households would graduate from the money lenders to that of Commercial Banks and Cooperative Banks. The decades of 1960s and 1970s are a witness to it where in the growth in share was 24 per cent in case of Cooperative Banks and 15 per cent in case of Commercial Banks. This trend however did not last long. Between 1971 and 1981, this growth decelerated to 3 per cent and 28 per cent respectively though the growth in the share of money lenders has shown – 8 per cent (negative). Interestingly, between 1981-91 and 1991-2002 the share of Cooperative Banks grew at 0.07 per cent and 0.06 per cent where as the share of Commercial Banks grew at 2 per cent and -3 per cent (negative) respectively. Where did this share go? In this period, the share of money lenders grew at 1 per cent and 4 per cent respectively. What this means is – unlike the popular belief that as the country’s economy is booming, the share of institutional finance would increase while the share of money lenders would decrease. Data does not say so. In the last two decades, while the share of Cooperative Banks and Commercial Banks in the debt of cultivator households of the country is increasing at a decreasing rate, money lenders are at the booty (see Figure D).

Is it that the fund flow from Commercial Banks and Cooperative Banks, in the last two decades, is in terms of indirect finance rather than the direct financing to the farmers’ households? In the last decade (2000-10) the share of indirect finance has increased for the corresponding decrease in the direct finance of the lending agencies (See Figure E). Of the increase in farm credit between 2001 and 2006, one third is due to the growth in indirect finance. But, is the indirect finance that is supposed to contribute to the development of agriculture making any dent?

At least the data on agricultural growth does not reflect so. The decadal trend growth in agriculture based on 10 years period between 1951-61 and 2010-11 shows two conspicuous dips in the trend line (See Figure F). The first is in the second half of the decade 1961-71 (which has triggered the so called Green Revolution in India) and second in the middle of the decade 2000-10. Especially when we have not experienced any conspicuous disaster in Agriculture that may have prompted the steep dip in the growth rate in the last one decade, the performance of the systems of agriculture development (that are otherwise receiving indirect finance) are perhaps to be looked in for the reasons if not blamed.

Neither the productivity of crops is showing any improvement though there lies a huge gap between the productivity levels of developed nations and that of India. During 2000-01 and 2008-09 while the productivity of grains of staple foods of India such as Paddy, Wheat, Bajra are growing @ 1.69, 0.24 and 4.38 per cent respectively, the productivity of pulses such as Tur, Gram is growing @ 1.43 and 0.64 per cent respectively. This is a clear indicator of underperformance of agriculture support systems.

What a paradox!! The farm credit at the aggregate level increases but the small and marginal farmers who are predominant the agriculture are not the ones who are receiving it. Indirect finance to support systems for agriculture development is increasing but the investments are not translating into either the increase in agriculture growth rates or increase in the productivity levels of the crops. Phew, how long do we need to see and live these paradoxes.

Sandeep Choudhary is awarded as Best Indian Farmer by many renowned Agriculture organization.