Agri Financing: Policy Reforms are Crucial to Address Grassroots Issues

The agricultural dilemma has resurfaced as a national economic issue as a result of the epidemic and national lockdowns. According to the Union Budget 2019-20, agriculture and its related industries employ roughly 55 percent of the population, although agriculture's economic contribution is only 16 percent. Despite the fact that different agri-tech organizations continue to seek technology disruption in the sector, their efforts have yet to bear fruit.

Major Concerns & Possible Reforms:

This is easy to understand: Smallholder farmers' financing issues and institutional credit access have not always received the attention they need at the policy reform level. Here are a few concerns that need to be reassessed by the government for a better agrarian future:

1. Issue of Landholding & Lending Sources

• According to the Agriculture Ministry's 2015-16 Agricultural Census, India has about 86 percent small & marginal farmers (SMFs) who possess less than two hectares of land. One of the many factors that push SMFs to turn to local, informal loan sources is their aversion to SMFs. SMFs are dragged into a loan pit by exorbitant interest rates, which leads to the age-old debt trap economic model, in which they lose the collateral (land).

• The government might advocate for the digitization of land records to increase the accessibility of formal credit sources. If banks are given online access to land records as well as the ability to make charges over land, it is possible that double or multiple financing on the same piece of land will be significantly reduced. The key goal is to provide legislative improvements that allow banks to explain their perspective on the current reluctance.

2. Hesitancy among Banks

• The hesitancy among banks arises mostly from a cost-benefit-risk analysis. The costs of serving remote agricultural areas, combined with SMF's low landholding and high default rate, yields insignificant benefits for them. Even if we increase bank outreach, loan default is a major problem as there’s no trustworthy information source for mass verification of credit history, land ownership, average yearly wages, and farmer background.

• The government's pro-digital vision is a good starting point for developing a mini-census model that depends on on-the-ground employees for data collection and big data at the back end for management. This measure would not only boost bank confidence and transparency, but it would also raise awareness of new-age financing options among SMFs.

3. Post-Harvest Losses                           

• Post-harvest losses cost India almost $13 billion each year. The lack of agricultural storage support infrastructure reduces farmers' individual financial capability while simultaneously producing a massive economic deficit.

• To address this, the government should encourage the establishment of public-private partnerships (PPP) for warehouses & cold storage facilities around the country. The government can issue building tenders for a decade, while the private Agtech firm works on a build-and-operate.

Existing regulations are industry-centric, but modern times demand a paradigm shift toward farmer advantages, which can be achieved through government support for technological disruptions as well as coordinated efforts with private agri-financing players and SMFs.

We hope for a bright future for the Indian agriculture business if policy reforms are formulated with the correct inputs from rural farmlands and then implemented effectively!!