The farming sector has been let down by this budget. The government has boosted the agricultural credit target for 2022-23 to Rs.18 lakh crore from Rs.16.5 lakh crore for the current fiscal year, with an allocated subsidy of Rs.20870 crore. But the question is, whether the huge credit and subsidies really benefitting farmers on the ground?
To enhance farmers' income, the budget speech and the Economic Survey 2021-22 recommended that crop diversification and associated industries such as horticulture, organic farming, dairying, and fisheries be prioritized. However, in order for small farmers to shift away from wheat and paddy and increase their income through related industries, they must have access to institutional credit at affordable interest rates.
While the volume of credit has increased over time, the quality and impact on agriculture has deteriorated. The agricultural sector's growth rate has been falling over time: it was 6.8 percent in 2016-17, whereas it is 3.9 per cent in 2021-22. Agricultural credit has been less effective at stimulating growth.
Agriculture credit has expanded by 350% in the last 10 years, yet it has not reached even 15% of the 12.56 crore small farmers and marginal farmers. Credit is essential for increasing farm productivity. Farmers will be able to delink from non-institutional sources, where they are forced to borrow at usurious interest rates, with the support of institutional credit.
The RBI has inquired if agricultural households with the lowest landholding (up to two hectares) receive only about 15% of their subsidized loan from institutional sources.
The share for households belonging to the highest size class of land possessed is 79%. (above 2 hectares). According to the NSSO Situation Assessment Survey of Agricultural Households, the share of institutional loans grows with the amount of land owned. Clearly, the majority of subsidized agri-credit is taken up by a small number of large farmers and agri-business firms.
A hazy definition of agri-credit has resulted in the leakage of low-interest loans to large agri-firms. For example, in 2017, 53% of the agriculture credit supplied by NABARD to Maharashtra was allocated to Mumbai metro city and suburbs, where there are no agriculturists, only agri-business.
One of the primary causes for this diversion is that subsidized credit provided at 4% to 7% interest rates is being refinanced to small farmers and on the open market at interest rates as high as 24%.
As chairman of the Working Group on Agriculture Production, established by then-prime minister Manmohan Singh in 2010, Bhupinder Singh Hooda had recommended strategies and action plans for improving agricultural production, including long-term policies to ensure sustainable growth. The working group's report emphasized the easy availability of institutional credit to farmers for future expansion, suggesting that "credit be made available at a rate of interest of no more than 4% per annum.”
The UPA government implemented this across the country. In Haryana, however, the Congress government provided farmers with crop credit at 0% rate of interest through state co-operatives.
He suggested the following changes in the agri-credit system.
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The flow of agricultural credit has not been consistent across states. Institutional development across states is a top issue for ensuring an equitable flow of subsidized credit.
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State governments should engage closely with the banking sector to promote more Joint Liability Groups (JLGs) in accordance with NABARD guidelines in order to ensure that formal credit reaches financially excluded farmers.
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State governments should keep a close eye on loan flow.
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The interest rate on long-term loans should be kept at 4%.
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Banks should produce a thorough inventory of all farm-related operations in cooperation with NABARD, agriculture specialists, farmers, and administration.
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The qualifying conditions/criteria for issuing agricultural loans should be simplified and liberalized further. The repayment schedule should be according to the farmers’ capacity.
As the then Haryana chief minister, he amended the law to permit the recovery of cooperative loans by leasing out the mortgaged land rather than selling, in the case of farmer default with the mutual consent of the cooperative society and the agriculturist. During his tenure, not a single farmer in Haryana was arrested for failing to repay cooperative loans. Haryana's agri-credit model, introduced by a Congress-led government, might serve as a model for other states.
