MR SUKHJIT Singh, who retired as Director, Agriculture, of the Punjab Government, is a leading agriculturist in the Jalandhar-Hoshiarpur belt and is representative of a small but growing community of farmers who believe that the agricultural sector may get a credit package, including initiatives for restructuring credit cooperatives, in the Union Budget for 2006-07.
As of now, the share of farm loans in total bank loans remains stubbornly below 16 per cent, significantly less than the share of agriculture in India's gross domestic product (GDP).
Even industry concedes that agriculture does not have equal access to cheap credit. While there is a scramble among companies to raise debt abroad at very low rates in the form of foreign currency convertible bonds, farmers even through cooperatives do not have access to FCCBs.
But, according to Mr Sukhjit Singh, recent events suggest that all this might change. He drew the attention of this correspondent to the fact that the National Advisory Council (NAC), chaired by Ms Sonia Gandhi, had recently called for a new deal for farmers and, in a communication to the government, had taken cognisance of the "reforms to strengthen credit cooperatives (which are) are on the anvil."
The Union Agriculture Minister, Mr Sharad Pawar, has also, in recent days, been emphasising the need to improve credit availability to the farm sector at affordable rates. For instance, inaugurating Bank of India's IT training centre in Pune recently, Mr Pawar, who additionally heads the National Development Council's Sub-Committee on Agriculture, made a mordant observation that "it is a funny situation when customers are offered loans at interest rates of 7 per cent to buy Maruti cars, the agriculture community, which has given us food security, has to pay 12-14 per cent interest."
Observers now believe that Mr Pawar will push hard his demand for 7-8 per cent interest on farm loans.
Mr Sukhjit Singh echoes the view of other agriculture experts that the government should arrange for the provision of agricultural credit at a uniform 7 per cent interest to all segments of the farm value chain, right from the purchase of inputs by farmers to retailing of produce and processed foods.
As for the banking industry, it has pinned its hopes on the implementation of the recommendations of the Task Force on Revival of Cooperative Credit Institutions. The Task Force, under the chairmanship of Prof A. Vaidyanathan of the Madras Institute of Development Studies, had submitted its draft final report to the Finance Ministry on December 30, 2004, and drawn up a blueprint for the phased implementation of its recommendations thorough a restructuring of the cooperative credit structure.
The Prime Minister, Dr Manmohan Singh's agreement with the views of the Vaidyanathan Committee is reflected in his observation at the September 27 meeting of the Planning Commission that the "implementation of the Vaidyanathan committee recommendations, on which substantial consensus has already been built, would pave the way for effective and democratic functioning of cooperatives, which will provide further boost to the credit delivery system."
A presentation made at the same meeting had said: "Consider revitalising of term lending as well as some debt relief to heavily indebted small and marginal farmers."
Agro-processing industry sources say that the Government should implement not only the recommendations of this committee but also of other official reports that wholly or partly deal with different aspects of agricultural credit.
In this context, they cite the recommendations incorporated in the Ministry of Food Processing Industries' (MoFPI's) voluminous document titled "Vision, Strategy and Action Plan".
The vision document calls for amendment of the Cooperatives Act to allow primary cooperatives to bank with scheduled banks to increase the flow of credit to farming.
It has further urged an amendment of the State Warehousing Corporations Act to enable State warehouses to tap loans from private sector banks.
The document points out that the banks would feel more comfortable providing loans to farmers if they had direct marketing linkages with agro-processing industries such as sugar mills.
Such linkages provide assured marketing arrangements as well as reasonably assured income from farming.
Available indications suggest that banks will not be averse to considering composite lending proposals for any supply chain project extending from contract farming to retailing provided the government-laid guidelines in this regard are followed.
Experts feel that the Government should further provide some incentives to banks for lending money to export-focussed supply chain projects at internationally competitive rates.