The Hindu Business Line : ‘Cost of credit remains a burden for farmers’

New Delhi, Nov. 22 Indian farmers continue to writhe under the whopping burden of debt, though successive governments, including the United Progressive Alliance (UPA) Government, have not been fighting shy to tom-tom their total commitment to the farming sector and how they have provided dollop of loans through scheduled commercial banks (SCBs) to this crucial plank of the economy.

But the cost of credit remains unacceptably unaffordable to legions of farmers, resulting in scores of suicides by farmers over the years.

Evidence of how the country’s SCBs managed their assets (loans and advances) and liabilities (deposits and borrowings) over a span of 15 years from 1991-92 to 2005-06 is provided in the latest monthly bulletin of RBI in a monograph, reflecting how these instruments of development had done or not done their job.

Thus, the agriculture sector, which was commanding 14.8 per cent share in 1991-92, dropped to 9.9 per cent in 1999-00. Its share to the total credit amount inched marginally to 11.4 per cent by 2005-06, thanks to the much-ballyhooed initiative of the UPA coalition government from mid-2004 for funnelling enhanced farm credit through the banking system.

Credit growth

The RBI study shows that the year-on-year agriculture credit growth increased from 9 per cent to 11.6 per cent during the span of 1992-93 to 1999-00 but afterwards there was acceleration high enough to crank up a growth of 38.8 per cent in 2005-06.

Despite this deluge of credit flows to the farm sector, particularly during the last couple of years, the agriculture sector loans were found to be as expensive as other sector loans in all the years compared.

Thus, the apex bank study shows that in 1991-92, the weighted average interest rate of agricultural loans was at 14.9 per cent which came down to 11.9 per cent in 2005-06.

If this were not enough, the case of small-scale industries (artisans and village and tiny industries and other small scale industries) is another eye-opener about how the SCBs remain risk-averse to traverse the extra mile to reverse the adverse operational constraints plaguing the small entrepreneurs, the services for whom the authorities seldom desist from highlighting.

Share of SMEs

But the hiatus between percept and practice continues to be a source of concern for lakhs of small and medium enterprises. Thus, RBI states that the per cent-share of number of loan accounts from this segment to the total persistently plummeted from 8.7 per cent in 1991-92 to 2.6 per cent in 2005-06.

What is disquieting is that the share of small-scale industries to the total credit amount also declined steadily from 12.7 per cent in 1991-92 to 4.1 per cent in 2005-06.

It is pertinent to note that SSIs accounted for 39 per cent of industrial production and 35 per cent of national export and provided regular employment to over 29 million persons by end-March 2006. So much is said but so little delivered for this segment by the authorities in general and the credit institutions in particular.

While the plight of farmers and small and medium enterprises in terms of access to credit from banking segment remains abysmally low and under-served, the record of banking sector to industry and trade continues to be no better as the RBI figures reveal that the share of number of loan accounts for “industry” in the total number of accounts registered a fall by almost six per cent from 1999-00 to 2005-06.

Exporter condition

The condition of exporters can scarcely be better as they have been constantly pleading for export finance at competitive global rates from the domestic banking industry!

Since the functional wheels of the economy viz., agriculture, industry, both small and big, and exports, continue to be clogged for want of finance on easier terms and on adequate volume, the Finance Minister, Mr P. Chidambaram, would do well to craft a policy to make the SCBs shed their inordinate risk-aversion for meeting the legitimate investment requirements of the real sector of the economy, instead of letting them park their funds in safe instruments that yield next to nothing, financial analysts say.

More Stories on : RBI & Other Central Banks | Farm credit

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