Farm Financing: Works remain much more than the pouring of funds

Dr B K Mukhopadhyay

(The author is a Professor of Management and Economics, formerly at IIBM (RBI) Guwahati. He can be contacted at m.bibhas@gmail.com)

The number of banks working in rural regions has been around 47 percent. The financial inclusion drive is on. Banks are participating in multifarious ventures [farm and non-farm]. The regional rural banks have come forward. Private sector banks are also increasingly foraying into the rural counterpart.

However, a very recent NSSO survey reflected one major aspect of the agriculture scenario in India. The agricultural credit net [formal and informal, inclusive] has been able to cover only half of the farming community, and as such, a large number of small and marginal farmers are still out of the coverage of the institutional financial system.

What is more, the credit flow is more skewed across states and regions. Intrastate sharp variations in credit flow have been very much alive, with the main benefit going to the developed regions [regions with greater access to physical infrastructure and regions closer to the urban centres] as compared to the underdeveloped regions. It has been observed that, due to a lack of penetration in remote areas, especially small and marginal farmers are largely still dependent on moneylenders for credit against collateral, and as such, the government’s agricultural credit schemes are far from their reach, making the farmers vulnerable to higher costs of credit. It has been observed that small farmers suffer from non-friendly practices, delays in credit delivery, and collateral problems.

No denial—to date, around half of the farmers are under the agri-credit net, and a lot thus remains to be covered.

But does it not remain the fact that credit alone cannot help boost the rural economy?

In the absence of overall planning and effective implementation, duly honouring the techniques of regional planning and tinkering along with the existing process can help little. Why the knowledge of regional planning has been lacking at virtually every stage of plan formulation still remains unanswered. Needless to say, politics has always played the leading role, virtually ignoring the economic and non-economic regional dimensions!

Time is already ripe to take a fresh view on this score so that the coming days remain sunny and we can lead the world as far as agri-rural development is concerned.

Let us analyse the real situation, covering different vital wings. A consistent decline in the share of private-sector investment in the agriculture sector is a matter of concern. This trend needs to be reversed through the creation of a favourable policy environment and the availability of credit at reasonable rates in time for the private sector to invest in agriculture.

Next, there has been a substantial increase in MSPs for various crops over the last few years. This is considered necessary to incentivize the farmers to increase production and productivity. At the same time, the MSP signals the floor price for the produce, which, in turn, has the potential to increase prices. Addressing the welfare of agricultural producers and consumers simultaneously poses a challenge. Further, the inability of a large number of small and marginal farmers to directly access the agri-market puts a question mark on whether increases in MSP actually benefit such farmers.

The positive things are not ignored, of course. But the grey areas should not also be lost sight of. Although the yield per hectare of food grains has shown some improvement in recent years, it is not significant enough to cater to the needs of the rising population, particularly when income levels are also rising. Since farm productivity is not showing desirable growth, there is an urgent need to focus on research as well as better agricultural practices to ensure that productivity levels are increased in the shortest time possible. Special attention may be required for states with relatively low productivity.

Especially, production and productivity in pulses and oilseeds are of growing concern. A sizeable proportion of these items are met through imports.  The scope for the import of pulses is limited due to the limited number of countries producing them.  Due to this supply-demand gap, domestic prices fluctuate with availability and prices in the international market, apart from the impact of domestic production trends.

Though the fact remains that record procurement of rice and wheat in the last few years has helped to build up the buffer stock and strategic reserve of wheat and rice, a huge cost is involved in the process, which is met through budgetary sources in the form of food subsidies, which, in turn, puts a lot of stress on the fiscal system. The issue of efficient food stock management and offloading of stocks on time needs urgent attention.

Despite the fact that agriculture accounts for as much as one fifth of the Indian economy and employs an estimated 60 percent of the labour force, it is considered highly inefficient, wasteful, and incapable of solving hunger and malnutrition problems. Despite progress in this sector, a number of problems have continued to frustrate India for decades.  It is estimated that as much as one-fifth of the total agricultural output is lost due to inefficiencies in the harvesting, transport, and storage of government-subsidised crops.

It must be agreed upon that, despite the overwhelming size of the agricultural sector, yields per hectare of crops in India are generally low compared to international standards. Improper water management is another problem affecting India’s agriculture. At a time of increasing water shortages and environmental crises, for example, the rice crop in India is allocated disproportionately high amounts of water.  One result of the inefficient use of water is that water tables in regions of rice cultivation, such as Punjab, are on the rise while soil fertility is on the decline.

Again: have we systematically tapped the allied agricultural potentialities?  The answer is a great no! Simply stating that the potentialities are immense does not serve any purpose if the same is not optimally tapped! Let us take one example on this score: a recent Exim Bank study on the floriculture industry observed that the global economic crisis has considerably impacted the growth potential of the industry.

Reviewing the performance of the Indian floriculture industry, the study observed that besides the negative impact of the global economic recession, the growth of the industry is increasingly affected due to growing competition in the international arena with the entry of new African countries into the global floriculture trade. Further, a number of Asian neighbours, such as China, Nepal, Sri Lanka, and Pakistan, are also emerging as competitors in India’s export markets. Europe continues to be the largest destination for Indian floriculture exports. However, India’s floriculture exports have been diversifying, from traditional markets, such as the EU and USA, to new markets in Asia Pacific, such as Japan and Australia. Against such a scenario, the study viewed the potential for expansion of commercial floriculture in India, including production for domestic and export sales of cut flowers and plants, as unlimited, provided the country expands the production of existing products as well as the product range. The study also identified some of the areas in which market opportunities exist for the Indian floriculture industry, viz., hi-tech cultivation and product diversification; tapping global landscaping opportunities; floral arts and floral designing markets; and catering to the global demand for custom-made products such as dry flowers, foliage, flower seed production, flower extracts, essential oils, and natural dyes.

So why not make a special drive on this score? Institutional finance is definitely available, and the fact remains that the banks are taking special interest in agri-development projects, and the NABARD has also been extending practical support on this score.

No less important is the fact of climate change! Recent studies indicate the adverse impact of climate change on agriculture. Crop improvement and research to develop drought-resistant, high-yielding varieties of seeds assume importance with a view to combating the adverse impact of drought on food production and ensuring food security. To sum up, we need to address the challenges of the agriculture sector through comprehensive and coordinated efforts. Renewed attention needs to be paid to improving farm production and productivity, better utilization of agricultural inputs, proper marketing infrastructure and support, stepping up investment in agriculture with due emphasis on environmental concerns, and efficient food management.