ASSOCHAM calls for urgent reforms in farm credit

New Delhi, September 2, 2012

Misdirection in farm loans, increase in indirect credit, imbalances in credit between States and crops and misuse of interest subvention are eroding farm credit effectiveness, according to a study by the Associated Chambers of Commerce and Industry of India (ASSOCHAM). 

Releasing the study on “Farm Credit” here today, ASSOCHAM called for major reforms in agricultural credit disbursement to make the virtual doubling of farm credit every year boost production in this year of low rainfall land also give corresponding dose of increase in output in the coming years.
In an analysis of agricultural credit over the last decade, the chamber listed misdirection in farm loans, increase in proportion of indirect credit by the banks, misuse of interest rate subvention for diverting credit to other sectors, imbalances in quantity of credit in relation to the size of the farms and the crops they raise, and virtual exclusion of small and marginal farms from institutional credit as some of the major problems besetting this sector.
“It is not enough to raise the credit availability to agriculture.  It is equally important to ensure that this credit goes to the needy and also disbursement has a correlation with the farming situation at individual and collective level," ASSOCHAM Secretary-General D S Rawat said.
The study has underlined the need for reduction of transmission costs, correction of structural deficiencies in credit policy, quick resolution of issues related to credit worthiness and attention to the problems of lack of collaterals for farm loans. 
ASSOCHAM said the concern over disparities in loans to different sectors like small and marginal farmers and large farmers needed to be addressed,
“Risk aversion” tendency of bankers generally towards agriculture and especially towards small and marginal farmers should be overcome, it stressed.
“One of the most significant facts about agriculture in the last few years is the massive increase in public sector, mostly Government, support to credit to farming operations.  Assuming that the credit is effectively disbursed this massive increase could be seen as a stabiliser and driver of the agricultural economy of the country along with other factors. According to the Reserve Bank of India between year 2000 and 2010 farm loans increased by 755 per cent to Rs. 3,90,000 crores. There has been a further increase with each budget.  In 2011-12 it was Rs. 4,75,000 and  in 2012-13 Rs. 5,75,00 crores," the report said.
It noted that agricultural credit allocated from the Central Government had gone up from Rs 2.29 lakh crore in 2006-07 to Rs 5.75 lakh crore (proposed) in 2012-13, describing it as "really heart-warming".
The study said that, despite the massive increase in Government provision of credit to the agricultural sector over the last one decade, the proportion of total bank credit to this sector in relation to the total bank credit remained more or less the same.  
"This revealed that despite the massive increase in credit to the sector, it was still inadequate considering the increasing intensity of farming, rise in output costs and energy intensive farming techniques," the report added.
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