Hope of deliverance

Unni Krishnan explains how the new Union Finance Minister plans to increase agricultural credit as part of his objective to encourage diversification in Indian agriculture

During his annual budget speech on July 8, 2004, Union Finance Minister, P Chidambaram promised to double the flow of agricultural credit over three years. This decision was in keeping with the promise made by the incoming United Progressive Alliance government to give the agricultural sector a major thrust. A comprehensive policy on agricultural credit had already been outlined on June 18, 2004.
Referring to the announcement, P Chidambaram emphasised upon the roles that commercial banks and financial institutions at different levels in the rural economy have to play, so that his vision might become a reality.

THE HIERARCHY
The institutional setup for the flow of credit for agricultural purposes comprises commercial banks, regional rural banks (RRBs) and co-operatives.
Commercial banks have a network of over 33,000 branches in rural and semi-urban regions catering to the needs of farmers. RRBs have a network of 14,000 branches. In addition, the co-operative institutions have a network of over 92,000 outlets to meet both the short-term and long-term credit needs of farmers.
The outstanding credit to agriculture from commercial banks is estimated to be Rs 1,00,000 crore as at the end of March 2004. It is, however, more appropriate to measure the banks’ support to agriculture in terms of the actual ground-level flow of credit during the year.
The flow of credit to agriculture during 2003-04 was estimated at Rs 80,000 crore, of which commercial banks contributed about Rs 43,000 crore. The task force on the flow of credit during the 10th Plan has estimated the total credit flow for the plan period at about Rs 7,36,570 crore for sustaining a growth rate of 4 per cent in agricultural production. The allocation for commercial banks is Rs 3,81,652 crore. This is an ambitious target considering the fact that the actual flow of credit during the 9th Plan period had been approximately Rs 2,35,000 crore.
The target of doubling flow of credit in the next three years is in line with the above requirement – this translates roughly into a 30 per cent growth every year. Public sector banks have been targeting a growth rate of 20-25 per cent in the past, but the actual growth has remained in the 15-20 per cent range. No doubt, there are challenges in achieving the targets, but the banking system feels that they are not out of reach. The action plan announced by the Finance Minister in consultation with the Ministry of Agriculture, Reserve Bank of India, Nabard and IBA contain several measures to overcome the bottlenecks so as to smoothen the flow of credit to agriculture and allied activities.
We take a brief look at some of the measures.

CREDIT SCHEMES
Over the years, the Kisan Credit Card Scheme has developed as a farmer-friendly delivery channel for meeting the production credit needs. Banks have issued over 4 crore Kisan Credit Cards at the end of March 2004. It is proposed that this product be developed into a comprehensive instrument to meet consumption needs, investment credit needs and also the funding requirements for undertaking allied activities. Efforts are also being made to further simplify loan documentation formalities.
The recent decision by the RBI to make loans of up to Rs 50,000 to farmers collateral-free is also expected to facilitate the hassle-free flow of credit to small and marginal farmers. Meeting the credit needs of tenant-farmers has always been a difficult task for institutional lenders. Efforts are being made to develop a viable model based on a group approach in order to facilitate institutional credit to this segment.
Commercial banks would be co-ordinating with Nabard in order to increase investment credit significantly in the coming years. Branches of commercial banks will each take up two or three investment projects in the areas of plantation, horticulture, organic-farming, agro-processing, livestock, micro-irrigation, sprinkler-irrigation, watershed management, village ponds development, and the like. Needless to say, the active involvement of state government agencies would be required for the successful implementation of these projects.
With a view to providing greater access to extension services for farmers, banks will be taking up the financing of agri-clinics in rural areas, which will be set up by agriculture graduates. These entrepreneurs will be trained by Nabard.

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