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Monday, Nov 01, 2004

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Capacity building among farmers

FOR BANKS, AGRICULTURAL credit is the flavour of the season. Conscious of the need to ensure consistent growth in lending to the farm sector, the new Government since the day it assumed office has been working on a package of measures. The Tenth Plan envisages an over three-fold jump in the credit flow to the farm sector, to Rs 7,36,570 crore. Though agricultural credit went up in the first two years of the current Plan period, the increase was, admittedly, not commensurate with the projections. Now, the government aims to double the flow of institutional credit in three years; the target for 2004-05 is Rs 1,05,000 crore, up 30 per cent. Guidelines issued by the Reserve Bank of India and the Indian Banks Association to commercial banks include a one-time settlement for small and marginal farmers; fresh finance for those whose debts have been settled or written-off; debt restructuring and provision of fresh loans for agriculturists affected by natural calamities; and relief measures for those indebted to non-institutional lenders. Nabard has issued similar guidelines to cooperative banks and the Regional Rural Banks.

Without doubt, credit is a crucial input for ensuring sustained growth in agricultural output. Recent measures to augment the flow of institutional credit to the rural sector and enhance the efficacy of the distribution channel have had a positive impact. However, there is still a long way to go. Banks have not been able to service small and marginal farmers and those in drought-prone areas who have had to depend on informal sources of finance. Recycling of credit remains affected by the deadweight of non-performing assets. Given the fragmented nature of agriculture, the very large numbers engaged in farming, and the poor land records, it is indeed a daunting challenge to ensure timely delivery of appropriate levels of credit. But there is another aspect to the issue: Whether enough, or anything at all, is being done to enable the farmer repay loans. Unfortunately, the policy emphasis seems limited to credit delivery. Higher credit by itself will not magically transform farm output. The other crucial factors include: Input delivery systems, scientific water management, improved agronomic practices, rural infrastructure as also dissemination of price and market information among farmers.

Capacity building ought to become an integral part of the loan programme. The policymakers should aim to build the capacity amongst farmers to repay the loan they have taken. This is not something banks alone can do. The Centre and the State governments have a crucial role to play in ensuring free and fair markets as well as in empowering farmers take an informed decision about what to grow and when to market. There is no alternative to stepping up public investment in agriculture, especially in the form of building lasting assets such as roads and warehouses. Only then will private investment flow in the direction. It may also be time to study how efficiently rural infrastructure development funds have been deployed and whether the benefits flowing to intended beneficiaries can be quantified.

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