To achieve 4 per cent annual growth in the farm sector, agri-credit of Rs 8,00,000 crore a year would be required over the next five years, according to the Planning Commission.

The estimated credit requirement for the farm sector is higher than Rs 5,75,000 crore targeted by the government for the current fiscal.

“Assuming agriculture growth of 4 per cent, the size of credit requirement in the 12th Plan period translates to about double the flow during the 11th plan at Rs 8 lakh crore, as against the level of Rs 4.5 lakh crore achieved during 2010-11,” the 12th Five Year Plan (2012-17) document said.

The demand for farm credit during the entire 12th Plan period is projected between Rs 31,24,624 crore and Rs 42,08,454 crore, it said.

This projected level of credit appears feasible in view of the 11th plan achievement, it added.

Pointing out the issues confronting farm credit, the Planning Commission said, “Agri-credit continues to neglect certain sub-sectors, the flow of term-lending is dwindling and there is inordinate increase in the share of indirect finance.”

Also, credit dispensation by institutions to small and marginal farmers has been disappointing, including by the Cooperative Credit Structure (CCS) which has traditionally catered to relatively smaller farmers, it said.

The Commission emphasised the need for objective assessment of credit requirement for direct and indirect financials of agriculture and also to redefine the priority lending sectors.

It also said that although commercial banks have about 70 per cent share in agri-lending, their rural branches continue to insist on collateral even for small loans, defying regulation.

Other factors constraining flow of institutional credit include delay in stabilisation of the business correspondent model and increasingly larger exposures of banks to Non— Banking Financial Company (NBFC) for easy compliance with priority lending requirements, it added.

Pointing out that the financial health of Long-term Cooperative Credit Structure (LTCCS) continues to deteriorate, the Commission said, “A quick decision is warranted on the implementation of the revival package for the LTCCS too on the lines of Short-term Cooperative Credit Structure (STCCS).”

There is also need for considering disciplined refinancing of Primary Agricultural Cooperative Societies (PACS) as standalone institutions, provided that these are member-driven.

“PACS still have the widest coverage and the recent development of financial PACS through commercial banks needs to be widened, deepened and strengthened, especially in cases where higher tiers of the STCCS are weak and not in a position to fund them,” it said.

(This article was published on September 25, 2012)
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