Agricultural Credit: Funds to Boost Agriculture not Reaching Small Farmers

Prakash Bakshi, Chairman of Nabard said, “We expected farmers to take 50 to 60 percent of loans during the kharif season, but neither disbursement nor repayments have any correlation with the normal cropping season,” as quoted by Economic Times. According to Reserve Bank of India farm loans increased 755 percent to 3, 90,000 crore between 2000 and 2010. The 2012 Budget has further increased the agriculture lending target to 5, 75,000 crore for 2012-2013.

Usha Thorat, former Deputy Governor of RBI said, “For every unit of nominal GDP growth, there is 1.3 to 1.5 units of credit growth.” With this principle, a threefold rise in agriculture credit should double the output but nothing like that can be observed in the economy. Most of the banks which withdrew in nineties have started lending again but a large portion of the money is not flowing in the agriculture sector.

This is because of the deteriorating economies of Indian agriculture as both banks and farmers seem to be putting this money outside farming. Banks today look at agriculture as problematic obligation. A senior rural banker, with a private bank in Hyderabad, told Economic Times, “Not only is bad loans in the sector higher, pricing of these loans is also abnormally low between them, our risk is not adjusted well. Not to mention the ever-present risk of waivers.”