Is Agricultural Credit Going in the Right Direction? RBI Questions Center

Is agricultural credit going in the right direction? A big question posed by the Reserve Bank of India (RBI)  in front of the Indian Government and public after revealing the data of the uneven distribution of farm credit across many states.  

As per the latest report of RBI’s Internal Working Group to review agricultural credit, the apex bank of India found that credit disbursal to the farm sector was higher than their agricultural gross domestic (GDP) product in some states.  

While many states like Kerala, Tamil Nadu, Telangana, Karnataka, and Punjab have the possibility of diversion of credit for non-agricultural purposes came in this category, as per the data revealed. 

According to the RBI report,  agricultural credit in states like Kerala and Tamil Nadu was almost 180 percent more than the average agriculture GDP of the state in the years 2015, 2016 and 2017. While in Andhra Pradesh, the ratio of crop loans disbursed to input requirement in 2014, 2015 and 2016 was a staggering 7.5 times more. It raises the biggest question of whether the credit is being used as intended. 

As per the revealed data, the ratio of crop loans disbursed to input requirement was not only unusually high in some States, it was also highly unevenly distributed. In Goa, the report says, five times more farm credit was disbursed in 2014, 2015 and 2016 than its input requirement. 

While Kerala is spending six times more, Telangana four times more, Tamil Nadu and Uttarakhand, and three times more in Punjab. 

If we look at the states like Jharkhand, West Bengal, Chhattisgarh, Bihar, Odisha, Maharashtra, Uttar Pradesh, and Rajasthan, it is found that they were not getting credit even to meet their basic input requirement of seed, organic manure, fertilizer, repair, maintenance, irrigation charges, electricity, pesticides, and insecticides excluding Labor charges and lease rentals. 

During FY 2018-19, the central government had fixed a target of spending of Rs 11 trillion in agricultural credit. But, the question arises whether it is going to the right person and right direction. 

The apex court even raises a question on short-term farm credit while the record showing that crop-related investment credit is going down.  

The report showed the proportion of short-term crop loans to crop-related investment credit, 51:49 in the year 2000, drastically changed to 75:25 in 2018. The report even blamed the prompt repayment scheme introduced in 2009-10, wherein farmers got an additional three percent subsidy on interest for short-term crop loans, for tilting the balance against investment credit. The report says the flow of investment credit is important for the long-term sustainability of the sector.