Indian literature is replete with examples of unscrupulous money lenders, who were the chief source of agricultural credit. To curb their inadequate, extortive and exploitative practices a multi-agency approach consisting of cooperatives, commercial banks and regional rural banks have been put in place in India to assist farmers. The financial requirements of the Indian farmers range from buying agricultural inputs – seeds, fertilisers, fodder etc., to personal loans in order to support their families in the poor crop production years. Credit is also requisitioned when farmers buy additional land, make improvements on the existing land, or purchase agricultural machinery. Farmers also seek loans to increase farm efficiency – such as hiring of irrigation water lifting devices, labour or other machinery.
In the pre-Independence era, The Cooperative Societies Act, 1904 was enacted which empowered cooperatives to become the premier institutions to disburse agricultural credit. Following this, the Reserve Bank of India (RBI) Act, 1934 came into force – wherein Section 54 mandated the creation of an Agriculture Credit Department with competent staff to advise the central and state governments; state cooperative and other banks; and to coordinate RBI functions for agricultural credit (RBI Bulletin, 2004). The evolution of institutional credit to agriculture can be broadly classified into four distinct phases as envisioned by Ramesh Golait, RBI Occasional Papers, 2007. He classified 1904-1969 as the period for predominance of cooperatives and setting up of RBI; 1969-1975 as nationalisation of commercial banks and setting up of Regional Rural Banks (RRBs); 1975-1990 as setting up of National Bank for Agriculture and Rural Development (NABARD); and, from 1991 onwards the start of financial sector reforms.
Farmers can access credit on various criteria that may be broadly classified on the basis of time and purpose. Although several other criteria for advancement of loans exist, such as security, liquidity, contract etc, only the former two have been discussed here.
Short-term loans to be repaid within a period of 6 to 18 months: All crop loans are understood to be short-term loans, but the length of the
repayment period vary accor-
ding to the duration of the crop.
Medium-term loans: Where repayment period varies from 18 months to 5 years.
Long-term loans: To be repaid within period ranging from 5 years to more than 20 years or even more. These loans together with medium terms loans are called investment loans or
Production loans refer to the credit given to the farmers for crop production and are intended to increase the production. They are also called seasonal agricultural operations (SAO) loans or short-term loans or crop loans. These loans are repayable within a period ranging from 6 to 18 months.
Investment loans given for purchase of equipment, the productivity of which is distributed over more than one year. Such loans are given for tractors, pumpsets, tube wells, etc.
Marketing loans are meant to help farmers overcome distress sales and to market produce optimally.
Consumption loans are advanced for purposes other than production.
The inadequacy of agricultural credit despite significant strides in network and outreach of rural financial institutions has been a subject of debate in the highest echelons of policy makers and experts. Despite efforts to increase institutional credit, the gap between loans issued and loans outstanding remain significant and seem to be widening in the recent years, affecting the financial stability of the lending organisations. (Fig.1) The share of institutional credit, which was little over 7 per cent in 1951, increased manifold to over 66 per cent in 1991, revealing a large decline in the share on non-institutional decline in the share of non-institutional credit from around 93 per cent to about 31 per cent during the same period. However, National Sample Survey Organisation (NSSO) 2003, data reveals that the share of non-institutional credit has taken a reverse swing which is a cause of concern (RBI Occasional Papers, 2007).
The share of credit granted to farmers was also observed to depend upon the size of land holdings. As per the data in the Handbook of Statistics on Indian Economy 2010-11, farmers with holdings larger than 5 acres were able to access 45.3 per cent of the agricultural credit extended through scheduled commercial banks (Table. 2) with per account share of credit being the highest for farmers with larger holdings.
A state ranking showed that Tamil Nadu ranked the highest in total percentage of institutional credit flow, (Table. 3) followed by Andhra Pradesh and Punjab – which has been a traditional stronghold for innovation and technology. There are also wide variations in the availability of institutional credit per hectare of gross cropped area in different states. It was as high as Rs 9,403 per hectare of gross cropped area in Tamil Nadu, Rs 7,666 in Kerala, Rs 5,352 in Punjab and Rs 4,604 in Andhra Pradesh, while it was as low as Rs 311 in Assam, Rs 667 in Rajasthan and Rs 698 in Madhya Pradesh during 2001-02 (RBI Occasional Papers, 2007). A region wise analysis from the data in Advisory Committee on Flow of Credit to Agriculture and Related Activities from the Banking System (Chairman: Prof. V.S. Vyas, June, 2004) RBI, Mumbai, revealed that the accessibility to institutional credit is higher in the southern region where the level of agricultural development is reportedly higher (Table 4). On the other end, a downward spiral was seen in the less developed states, which remained at lower levels of technological investments as less credit hampered capital investment and resulted in poor productivity – forcing farmers to access non-institutional sources.
In 2004-05 there was a massive expansion in agricultural credit with banks extending loans aggregating to Rs 18,041 crore by end-March 2007 (Report on Trend and Progress of Banking in India), registering a growth of 58.3 per cent over the previous year. The Economic Survey 2011-12 records a disbursed of credit to the tune of Rs 4,46,779 crore to the agricultural sector as against a target of Rs 3,75,000 crore in 2010-11, exceeding by around 19 per cent. Commercial banks and RRBs together extended credit to 104.96 lakh new farmers and cooperative banks to 22.30 lakh new farmers – taking the total number of new farmers brought under the banking system to 127.26 lakh during 2010-11. The total number of agricultural loan accounts financed as of March 2011 was 5.50 crore. The credit flow to agriculture during 2011-12 by commercial banks, cooperative banks, and RRBs together was 2,62,129 crore till October 2011, amounting to 55 per cent of the annual target of Rs 4,75,000 crore (Economic Survey 2011-12).
Several Committees were set up from time to time to look into the various issues relating to credit delivery for agriculture. Farmers’ suicides are on the rise and indebtedness is cited as one of the primary causes – Andhra Pradesh, Karnataka, Maharashtra, and Kerala having witnessed the largest number of cases apart from Odisha, Gujarat, and Punjab. To mitigate the distress of the farmers, the Government of India launched a special rehabilitation package for 31 districts in 2006-07, identified on the basis of incidence of farmers’ suicide. The package aims at establishing a sustainable and viable farming and livelihood support system through debt relief to farmers, improved supply of institutional credit, crop-centric approach to agriculture, assured irrigation facilities, watershed management, better extension and farming support services, improved marketing facilities and subsidiary income opportunities through horticulture, livestock, dairying, fisheries. For alleviating the hardships caused to debt stressed families of farmers in the affected districts, ex-gratia assistance from Prime Minister’s National Relief Fund (PMNRF) was also proposed.
Since the mid-1990s, large sections of the farm households have been facing a great deal of distress as a consequence of decline in agricultural income, erosion of their repayment capacity and increased debt burden. Reversal of this trend would require not only adequate institutional credit extended to farmers but also concerted steps to revive agriculture which would help increase credit absorptive capacity of