Out of credit

Access to banking services remains a problem for small and marginal farmers.

A new governor has taken charge of the RBI at a time when farmers are threatened on a scale without precedent in independent India’s history. Agricultural growth is pivotal to any strategy to reduce hunger and poverty. The fact that it is suffering is also evident from the fact that food inflation is at a three-year high and supply is unable to keep up with the rising demand. Any strategy to rectify this problem must focus heavily on creating easy access to cheap credit for small and marginal farmers.

R. Ramkumar, associate professor at TISS, has studied rural credit extensively and observed that the acceptance of a majority of the recommendations of the Narasimham Committee on Banking Sector Reforms resulted in diluting priority sector lending norms. This led to a large-scale closure of rural bank branches and skewed credit deployment. A lot that had been achieved, over several years, with respect to rural credit was reversed after the 1991 liberalisation by the then finance minister. The rate of growth of agricultural credit fell from 6.8 per cent to a meagre 2.6 per cent per annum between 1991 and 2001. Agricultural credit grew even slower than the rural population during this period. In 2004, Prime Minister Manmohan Singh declared the government’s intention to double the flow of credit to agriculture over a period of three years. If the government had managed to achieve this, India would not be facing the crisis of agricultural growth and productivity that it is today.

According to official figures, agricultural credit dispersal increased from Rs 51,229 crore in 2002 to Rs 5,10,728 crore in 2011-2012. Agricultural credit grew by 17.6 per cent per annum during this period. However, over 60 per cent of poor farmers in the country still have no access to institutional credit, in spite of the government’s aggressive expansion. Broadly speaking, agricultural finance comprises loans provided directly to cultivators, known as direct finance, and credit given to institutions that are supposed to support agricultural production in rural areas, known as indirect finance. The so-called growth of agricultural credit was the outcome of a series of definitional changes, which have been put into effect since the beginning of financial liberalisation. Of the total increase in credit supply between 2000 and 2011, about 33 per cent was contributed by indirect finance, up from 18 per cent in 1990.

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