Increase thrust on agriculture lending

Increase thrust on agriculture lending
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Highlights

Increase Thrust On Agriculture Lending. The agriculture plays a vital role in accelerating the growth of Indian economy, more particularly in the hinterland.

The agriculture plays a vital role in accelerating the growth of Indian economy, more particularly in the hinterland. Over 70% of the rural households depend on agriculture as their principal means of livelihood. The total share of agriculture & allied sectors in terms of percentage of GDP works out to 13.9% during 2013-14. Despite such strategic role of agriculture, the eco system for its growth needs much more focus than it is able to receive now.

The vulnerability of the sector to the natural calamities such as floods, untimely rains, lack of rains (El Niño), cyclones, hurricanes etc. undo many of the policy initiatives that are taken to strengthen it. Needless to state that agriculture sector continues to be the life line of our economy and a robust support is needed to ramp up its produce while addressing many such unforeseen exigencies.

There are multiple factors that have predominantly worked in tandem leading to the growth of the Indian agriculture sector in recent years. These include growth in income and consumption, growth in food processing sector and increase in agricultural exports. Also, increasing private participation in Indian agriculture, growing organic farming and usage of information technology are the trends that are being witnessed by the agriculture industry. The life style changes and spurt in income levels has given rise to demand for processed ‘ready to eat’’ food industry.

But one of the biggest challenge among many is to make available, an affordable hassle free institutional credit to the agriculture sector to make it more viable. Delivering credit to every farm sector activity needs lot of inter institutional collaborations and credit inclusion that calls for financial literacy and robust credit delivery channels.

Ever since the nationalisation of banks and subsequent introduction of Lead bank scheme and priority sector lending, credit reach to farmers have increased. The 40% of priority sector lending for Indian banks and 32% of its lending is prescribed for foreign banks. But foreign banks with more than 20 branches in India should meet 40% lending to priority sector by March 2018 at par with national banks.

Out of it, 18% (13.5 % to direct agriculture and 4.5% to indirect) of it should flow to agriculture. These prescriptions have changed the outlook of banks on farm sector lending in the last few decades and credit to agriculture is growing but lot remains to be done.

RBI has recently included another clause that 7.5% of priority sector lending should go to small and marginal farmers which was not prescribed earlier. 'Marginal Farmer' means a farmer cultivating (as owner or tenant or share cropper) agricultural land up to 1 hectare (2.5 acres).

'Small Farmer' means a farmer cultivating (as owner or tenant or share cropper) agricultural land of more than 1 hectare and up to 2 hectares (5 acres). For the purpose of priority sector loans ‘small and marginal farmers’ include landless agricultural labourers, tenant farmers, oral lessees and share-croppers, whose share of landholding is within above limits prescribed for “Small and Marginal Farmer”. This new norm is meant to address the woes of such large chunk of farmers not getting the credit support.

The thrust on farm loans

Since the Indian agriculture sector is poised to grow with better momentum in the next few years owing to increase in investment in agricultural infrastructure such as irrigation facilities, warehousing and cold storage, banks too can continue to improve their credit delivery mechanism with multiple twin objectives. (i) To improve the pace of credit off take (ii) To relieve the farmers from the clutches of indigenous money lenders charging usurious lending rates making farming unviable. (iii) Join actively in strengthening the rural economy where the real India thrives.

Way forward, with the potential export capabilities and corporatisation of agriculture business, banks and other lending institutions should look at agriculture lending much beyond a priority sector activity. They should integrate it with the main stream commercial lending activities with no bias.

The attitude and approach to treat agriculture lending as an obligatory one needs to be changed and it needs to be seen as a profitable activity besides nurturing its intrinsic virtue of meeting the national priority. With the policy shift visible among lenders, the thrust on lending to agriculture is all set to gain better momentum from the current fiscal using the synergy of the Prime Minister’s Jan dhan Yozana (PMJDY) that now better connects the hinterland with the main stream banking system.

The author teaches at National Institute of Bank Management (NIBM) in Pune. The views are his own.

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