The Hindu Business Line : Farm credit: Targets are fine, but more is needed

The letter stated that `in 2003-04, the total flow of agricultural credit had been estimated to be Rs 80,000 crore;' and went on to add that this is to be stepped up 30 per cent, to Rs 1,05,000 crore, in 2004-05.

Presumably this inflow will be reached, and may well be breached. The result, however, will depend not on the size of the inflow, but on the outcome. The question is whether farmers will be better off after they get the loans than they were before.

Table I gives CMIE-based data on the ratio of agricultural GDP to scheduled commercial banks' agricultural loans outstanding.

It can be seen from Table I that the list is headed by West Bengal, Bihar, Orissa and Uttar Pradesh.

This does not necessarily mean that these four States are the most efficient users of agricultural credit.

On the contrary, the `loans outstanding' column in Table I gives the impression that these States head the list merely because they ranked lowest in terms of agricultural credit outstanding.

In which case if credit flows to these States are increased, it is possible that they would be able to do much better. But the capacity to usefully absorb credit too needs to be taken on board.

Data presented in Table II show a fairly close rank correlation between agricultural credit outstanding per capita on the one hand, and, on the other, the numerical share of large and medium holdings to total holdings.

Exceptions such as Karnataka and Tamil Nadu could be perhaps be accounted for by differences in the `irrigation' variable.

Given the correlation between credit inflows and proportion of medium and large holdings, plans to radically increase credit outflows need to be tempered with a pinch of caution.

When bankers are given targets to meet, they tend to concentrate on farmers who have larger holdings. Because that way they can meet their targets more easily.

No doubt targets have also been set for increases in the number of loan accounts. Mr Chidambaram's letter called on banks to `bring into their fold, on average, at least 100 new farmers at each rural and semi-rural branch, during the current year'.

The goal, the letter states, `is to enlarge the universe of new farmers borrowing from banks by about 50 lakh'. One can expect Branch Managers to target a large number of small borrowers.

This would take care of `number of accounts' targets, even as larger borrowers rake in most of the credit in rupee terms.

In this connection the CMIE data show a sharp drop in some States in the number of medium and large holdings between 1990-91 and 1995-96.

The number of medium holdings in West Bengal, Bihar and Orissa decreased by 24.3 per cent, 22.3 per cent and 15.9 per cent respectively.

Meanwhile, the number of large holdings in West Bengal and Bihar decreased by 22.5 per cent and 44.23 per cent.

No doubt, some proportion of this decrease could be accounted for by land reforms, or the partitioning of property among younger members of the family.

However, data for Punjab suggest that this might not have been the sole reason. Over the same period, medium holdings in Punjab increased by 17 per cent; and large holdings by 19 per cent.

In short, the question is not how many more people you reach out to, but whether these people are left more prosperous after you have reached out to them or less.

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