INTRODUCTION
Agriculture is one of the key drivers of India's economy and a major source of livelihood for a large section of the population. Despite this, the sector has faced numerous challenges, including limited access to credit and markets, low productivity, and inadequate infrastructure. To address these issues, the government of India has implemented several policies and initiatives aimed at promoting agricultural finance and supporting the growth of the agricultural sector.
AGRICULTURAL FINANCE
“Agricultural Finance”, according to Tandon and Dhondeyal (1991), could be considered as a branch of Agricultural Economics that deals with the provision and management of Bank services and financial resources related to individual farm units. “Agricultural Finance” deals with the financial, (micro and macro aspects of a farm business in an economy.
“Agricultural Finance” is the economic study of the acquisition and use of capital in agriculture. So it deals with the demand for, and supply of funds in the agricultural sector of the economy (W.F Lee, 1980)
The government of India has established several institutions to provide financial support to farmers, including National Bank for Agriculture and Rural Development (NABARD), regional rural banks, cooperative banks, and commercial banks. These institutions provide a range of services, including credit support for farming operations, procurement of inputs, and post-harvest activities.
The government of India has also implemented several schemes to provide credit support to farmers, such as the Pradhan Mantri Fasal Bima Yojana, which provides insurance coverage for crops. Additionally, the government has introduced interest subsidies and debt relief schemes for small and marginal farmers to help them access credit.
ROLES OF CREDIT FOR AGRICULTURAL DEVELOPMENT
Adoption of modern technologies require capital. Farmers’ income are seasonal while his working expenses are usually spread over time. However, farmers’ inadequate savings require that some credit be harnessed to meet the increasing capital requirements.
Credit is a unique resource that provides the opportunity to use additional inputs and capital items in the present to pay for them from future earnings.
Credit has both static and dynamic characteristics. In its dynamic nature, when farmers adopt improved agricultural production technologies, institutional credit can be used for increasing agricultural production and proceeds will be available for both production and consumption rather than for the payment old debts . Note that , under this situation, it is important that institutional credit are not only supplied in due time but also adequately.
This implies that credit can only play its dynamic role, only in relation to agricultural production technology and in the presence of credit absorption capacity.
● Credit fills the gap between demand and supply resulting from investments
● Stimulates agricultural production especially in the rural areas.
● Helps production to meet up with current expenses.
● Stimulates production and raise the levels of income of farmers.
SOURCES OF AGRICULTURAL FINANCE IN INDIA
INSTITUTIONAL SOURCES
- Cooperative Credit societies (Primary Agricultural credit societies, Central Co-operative Bank, state Co-operative Bank)
COMMERCIAL BANK
- Regional Rural Banks (RRB)
- NABARD
NON-INSTITUTIONAL SOURCES
- Money lenders, Traders, Landlords, Co-operative credit societies - This is the cheapest source, these provide short term as well as long term loans.
- Primary Agricultural credit societies at village level
- Central co-operative Bank at District level
- State co-operative Bank at state level
COMMERCIAL BANKS
Initially the contribution of commercial bank was very less. After nationalization of banks in 1969, contribution of banks to agricultural credit increased significantly. It provides Direct & Indirect finance. Direct finance for purchasing of pump sets, tractors, other agricultural machinery, construction of wells, tube wells and for other agricultural activities to farmers. Indirect finance is granted to co-operative societies, FCI, state Govt. and other agencies engaged in procurement, storage and distribution of food grains. It also provide credit through service units for warehousing, processing , marketing, transporting etc.
ACHIEVEMENTS OF COMMERCIAL BANKS
Share in total rural credit increased from 0.9 % to 74.5%. Helped rural population to free themselves from the cluches of Money lenders. Helped farmers to use the modern methods of cultivation and improve their financial position.
PROBLEMS : Huge loss due to branch expansion Cost of service increased with large no. Of small borrowings. Problem of bad debt Lack of coordination between the commercial banks, cooperative banks and RRB.
REGIONAL RURAL BANKS (RRB)
5 RRBs set up in 1975 for weaker section of rural community. They give direct loans only to small and marginal farmers, agricultural laborers, rural artisans and small entrepreneurs to develop industry, trade and other productivity in rural areas. They are sponsored by a commercial bank which contributes to 35% of their share capital. Area of operation is limited to a specific region and few districts. Lending rates are low. Refinanced by NABARD.
ACHIEVEMENTS OF RRBS :
Helped needy poor people by providing loan at lowest cost. No. of RRBs increased from 5 to 196. In 2010-11 RRBs provided about 10 % of the Institutional credit to agricultural sector.
PROBLEMS : Controlled by many agencies central Govt., state Govt. And commercial banks. leads to delay in decision making. Recovery position is poor Substantial loss Lack of proper management. Defective lending policy.
NABARD
National Bank for Agriculture and rural development (NABARD) set up in 1982. it is a refinancing agency. During 2010-11 sanctioned Rs. 35,273 cr.
FUNCTIONS :
- As an apex institution it has to take care of financial requirement of agriculture and rural development.
- Provide short term, medium term and long term credit to cooperatives, RRBs and commercial banks which are main sources of institutional credit.
- It gives long term loan up to 20 years to state govt. to enable them to subscribe to the share capital of cooperative credit societies.
- Direct and supervise the flow of credit to agriculture, a small scale industries, cottage and village industries, handicrafts and other economic activities in rural areas.
- It maintains a Research and Development Fund to promote research in agriculture and rural development. The Rural Infrastructure Development Fund(RIDF) was established in 1995- 96 to finance infrastructure projects. The RIDF gives loans to state Governments for infrastructure projects such as irrigation, rural roads, rural bridges, watershed management, flood control, warehouses, cold storages, fisheries, forest development etc.
- NABARD provides 100% refinance assistance to banks at low interest rates for financing self help groups.
- It has introduced the Kisan Credit Card scheme in 1998-99 to provide short term credit to farmers. The scheme is implemented by commercial banks, RRBs and cooperatives. Today KCC has become very popular among farmers.
- NABARD helps the RRBs and the co-operative banks to implement the Swarnajayanti gram Swarozgar Yojana.
- It is responsible for conducting inspection of the cooperatives.
PROBLEMS OF AGRICULTURAL FINANCE :
Agricultural credit in India faces several problems, including:
LOW CREDIT PENETRATION : Many farmers lack access to formal credit sources, leading to dependence on moneylenders and informal loans with high interest rates.
LIMITED AWARENESS : Many farmers are not aware of the various credit schemes and loan facilities offered by financial institutions.
INADEQUATE CREDIT SUPPLY : The credit supply to agriculture sector is limited, leading to a shortage of funds for farmers.
HIGH INTEREST RATES : Interest rates for agricultural loans are often higher than for other sectors, making it difficult for farmers to repay loans.
LACK OF COLLATERAL : Farmers often lack the collateral required by financial institutions for loan approval, leading to low loan disbursal.
REPAYMENT ISSUES : Farmers face difficulties in repaying loans, leading to a high rate of loan defaults.
SUGGESTED REMEDIES :
INCREASE AWARENESS : The government should educate farmers on the various credit schemes and loan facilities available.
EXPAND CREDIT REACH : Financial institutions should increase their reach and focus on providing credit to under-served areas.
REDUCE INTEREST RATES : Interest rates for agricultural loans should be reduced to make them more accessible to farmers.
ALTERNATIVE COLLATERAL : Financial institutions can explore alternative forms of collateral such as crops and land use rights.
INCREASE CREDIT SUPPLY : The government and financial institutions can increase the credit supply to the agricultural sector, ensuring that farmers have access to adequate funds.
STRENGTHEN REPAYMENT MECHANISMS : The government can implement measures to ensure that farmers are able to repay loans, such as providing crop insurance and income support.
CONCLUSION
The agricultural credit sector in India faces several challenges including low credit penetration, limited awareness, inadequate credit supply, high interest rates, lack of collateral, and repayment issues. However, these challenges can be addressed through a combination of measures such as increased awareness, expanded credit reach, reduced interest rates, alternative collateral, increased credit supply, and strengthened repayment mechanisms. Implementing these measures can help improve the availability and accessibility of credit for farmers, leading to a more sustainable and profitable agricultural sector in India.