Time to augment credit flow to the farm sector

Dr BK Mukhopadhyay

(A noted management economist and an international commentator on business and economic affairs.

He may be reached at m.bibhas@gmail.com)

There is no doubt that lending is still skewed in favour of a few industrial houses. Naturally, the clarion call is there to increase the lending speed to the farm sector. Banks are to focus on the bottom of the pyramid by giving loans to tenant-farmers, small and medium enterprises and extending micro-credits in villages. It has rightly been observed that for the PSBs, private Banks, foreign Banks, RRBs and Co-operatives, farm lending would be the key area in the days to come.

Though there has been a significant rise in the quantum of farm credit in the recent past, yet the need is there to formulate a credit policy especially for the small and marginal farmers. Though target is very much there to direct 18 per cent of net credit flow to this sector, yet the same is yet to be regularly achieved and thus the formulation of a credit policy exclusively for the small and marginal farmers could go a long way in channelizing the resources in a planned and directed manner.

Though rural counterpart accounts for the largest share in the number of bank branches, depositors as well as borrowers, yet when it comes to the money deposited or borrowed from the banking system, they account for a very small share. The number of borrowers for agriculture is the highest for any category of borrowing across population groups - rural, semi-urban, urban and metropolitan groups. Though loans for agriculture from rural regions registers a rising trend, yet around 64 per cent of the total loans extended from rural regions goes to other sectors such as industry, which includes mining and quarrying and construction, retail loans, trade loans and loans for professional and other services.

Side by side: out of loans extended as agricultural loans by commercial banks only 40 per cent originates from rural areas. The balance originates from semi urban, urban, and metropolitan areas. These loans are generally loans extended for personal expenses (like marriage, to fund health related expenses) and also service other borrowings from the unorganized sector. Loans for manufacturing and processing, subcategory within industry, remains the second major head of borrowing

It is heartening to note that the Government has been examining the question of agricultural credit and related issues in consultation with the RBI, NABARD and commercial banks. Government is of the view that the full potential of agriculture as a profitable activity must be realized at the earliest to benefit the farmers. Among the factors that will help in realizing this full potential are access to institutional credit to more farmers and appropriate quantity and quality of agricultural credit.

It is good that the private sector banks are also coming forward. In the recent years and have been focusing on rural credit as well as working with micro-finance groups has attracted attention. Banks have also been exploring further possibilities to work better with the Co-operative societies so as to expedite flow of credit in the rural sector.

Transfer of technology

Coming up of an alternative institutional arrangement seems to be very crucial at this juncture considering the very aspect of technology transfer to villages to tap the huge potentiality of employment in the rural non farm sector. The NGOs could come in a bigger and planned way to play a vital role in the matter of choice of technology and its transfer to villages. That is to say, the need has largely been felt as to evolving a sustainable system by linking up rural industries with modern industrial sector.

As the fragmentation of land holdings has been on, more and more farmers getting marginalized, income and employment creation through the non-farm sector through technology transfer could act as a saviour since the non-farm sector already contributes to about 40 percent of rural income whereas only 10 percent of the rural people (around 7 crore) was engaged in non-farm activities. Expansion of this magnitude by tapping the vast potential in the non-farm sector may reasonably be the prominent way to eradicate rural poverty.

Of course it is better to have a basket full of technologies. For that matter appropriate and effective delivery system to transfer technology to the rural artisans, potters, weavers, blacksmiths and so on could go a long way to make them keep heads above competitive environment. Raising agricultural productivity through technology transfer could likewise act as booster to the region suffering from low productivity. It also remains the fact that 66 percent of population stays in rural areas and even one percent shift in population would involve 10 million.

Value addition through food processing, fisheries’ improvement, quality break-through for arts and crafts and standardization in medicinal herbs etc have the potentiality to create job. A network of rural industries backed by modern industry experts and networking of rural development agencies capable of such transfer of technology could yield better results even within the traditional scenario.

In lieu of conclusion

Though a good bit of publicity has been there on the farm front’s success, it must be admitted that the reality leaves much to be desired. Agricultural development, in fact the whole process of rural development, requires a shot in the arm. Reforms should not be stopped since once we have entered into the tunnel every effort must be made to come out of the tunnel, the process being very very difficult and complex too, simply because of the fact that the steps taken till now as well as the very implementation process is full of gaps which should have been bridged during last 68 years of planning.

The result is well known!

Rural savings generated continue to be used for metropolitan / urban development and migration of fund continues if the current trends are of any indication in as much as the top 100 centres which account for around 65 percent of deposits are able to grab around 73 percent of credit so far as banking business indicators are concerned and thus furthering the incidence of regional imbalance.

Truly, institutional finance alone could not change the scenario in the very absence of other infrastructure and allied supports. Simply asking the banks to double credit flow / utilization is not enough. The roots must be taken into account. Micro-level planning largely continues to cry in the wilderness, irrespective of painted projected rosy picture. Political decisions overrule economic justifications, further complicating the development scenario. Either the projects are delayed or follow up measures are absent or inadequate.

Is it not a fact that the gains from green revolution has been slowly fading away? Population would be going up while food grains out put would not be able to register commensurate growth - such a situation needs immediate tackling. So the ‘Sense of Urgency’ has to be taken with all degree of seriousness.

Commercial opportunities offer banks to lend and earn reasonable profits. Banks should not lose out on potential income opportunities in a dynamic sector of the economy.