The Hindu Business Line : Reaching the un-reached

Nearly 80 per cent of farmers in this country own less than two hectares of land, and many of them are as yet untouched or un-reached by the formal banking sector.

At a time when the actual performance on the farm front (tepid output growth, supply shortfall, near-stagnancy in income, agrarian distress) has left much to be desired comes the report that credit flow to the sector has exceeded the target for the third year in a row. Against the target of Rs 1,75,000 crore, the actual disbursements of farm credit by the banking system during fiscal 2006-07 were higher at Rs 2,03,269 crore. In the previous two years too, the overall far m credit expanded by 35-40 per cent, beating the year’s target.

The Farm Credit Package announced by the government in June 2004 (when it assumed office) stipulated doubling the flow of institutional credit for agriculture in the ensuing three years, and judging from the expanded credit flow, the government and, in turn, the banking system, has acquitted itself well. For 2007-08, the Union Budget has fixed a target of Rs 2,25,000 crore as farm credit with an addition of 50 lakh farmers to the banking system. Yet, there is nothing to feel smug about these numbers simply because the deeper malaise remains unattended to, notwithstanding the impressive performance in recent years.

There is positive correlation between credit flow and farm output. While adequate and timely delivery of credit is ‘necessary’, it is by no means ‘sufficient’. Several accompanying factors — weather, input supplies, agronomy — impact agriculture, and they need to be focussed upon. It is well-known that nearly 80 per cent of farmers in this country own less than two hectares of land. The informal sector of rural financing is still active. Many farmers are as yet untouched or un-reached by the formal banking sector. Despite higher flow of credit in the last three years, migration from rural areas and farmers’ suicides have continued, it may not be unreasonable to infer that institutional credit is yet to reach a large number of small and marginal farmers — the really distressed lot. Banks have been content with lending to relatively better-off farmers. This raises two issues: One, how to reach the un-reached? And the second, how to build capacity among farmers to repay the loan? Indeed, insofar as agriculture is concerned, the entire banking system must endeavour to go beyond just lending. Banks should be in a position to educate/train borrowers, mainly small growers, about markets and prices as also inputs. To some extent, banks can deliver the now near-defunct extension services.

Information technology is an effective tool to deliver market information to growers. Building in rural infrastructure (warehouses, cold chains) would go some way in preventing glut at the market yards and resultant price crashes. All this needs not only financial investment, but also a commitment to the cause and the patience to wait for positive results. The banking sector can surely play a more proactive role in capacity building among farmers.

Related Stories:
Banks must look beyond credit to help farm sector
Farm credit: Myth and reality

More Stories on : Editorial | Farm credit | Agriculture

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