Agricultural Credit in India: A Pillar of Rural Development Amidst Evolving Challenges

Courtesy-NITI Aayog

Introduction: Agricultural credit is financial assistance provided to farmers to enable them to meet their financial requirements for agricultural and allied activities. It enables them to acquire necessary inputs, make investments in farm infrastructure, adopt modern technologies, manage operational costs and meet consumption needs during lean periods.

Types of Agricultural Credit:

• Based on Tenure:

1. Short-term credit: For periods up to 15 months, primarily to meet seasonal agricultural operations likle purchasing seeds, fertilizers, pesticides, and paying for labour.
2. Medium-term credit: For periods between 15 months and 5 years, used for acquiring assets like cattle, pumping sets, and other agricultural implements.
3. Long-term credit: For periods exceeding 5 years, for significant capital investments such as land purchase, land development, horticulture and purchase of heavy machinery.

• Based on Purpose:

1. Productive loans: Directly enhance agricultural production e.g for inputs and machinery.
2. Consumption loans: For subsistence and basic needs of the farmer's family.
3. Unproductive loans: For social obligations like marriages in order to reduce reliance on informal sources of credit such as moneylenders.

Sources of Agricultural Credit:

• Institutional Sources:

1. Credit from cooperatives including Primary Agricultural Credit Societies (PACs), District Central Cooperative Banks (DCCBs) and State Cooperative Banks (SCBs).
2. Commercial banks are the largest sources of credit to agriculture and allied sectors.
3. Regional Rural Banks (RRBs) specialize in lending to rural areas, focusing on small and marginal farmers, agricultural labourers and rural artisans.
4. National Bank for Agriculture and Rural Development (NABARD) is the apex institution for providing refinance facilities for agriculture and rural development.

• Non-Institutional Sources: Include moneylenders, traders and commission agents, landlords, relatives etc.

History of Agriculture Credit in India:

• Pre-Independence Era:

1. Moneylenders were the primary source of agri-credit to small and marginal farmers. Credit was available at very high interest rates, often leading to a cycle of indebtedness.
2. The colonial government sought to provide direct credit to the farmers through acts like the Land Improvement Loans Act (1883) and the Agriculturists Loans Act (1883).

• Birth of Cooperative Movement (Early 20th Century):

1. The Cooperative Credit Societies Act (1904) recognized the issues with informal credit and sought to promote the formation of cooperative credit societies.
2. The Cooperative Societies Act (1912) legally recognized credit societies and other cooperative organizations.
3. Maclagan Committee on Cooperation (1915) recommended strengthening the cooperative societies, resulting in the formation of provincial cooperative banks.
4. The RBI Act (1934) contained a provision (Section 54) for an Agricultural Credit Department.

• Post-Independence Era:

1. The All India Rural Credit Survey Committee (1954)/ Gorwala Committee suggested a multi-agency approach to rural credit with a predominant role for cooperatives.
2. Nationalization on banks in 1969 and 1980 aimed at targeting credit to neglected sectors including agriculture.
3. Priority Sector Lending Norms (1972) sought to ensure adequate credit flow to agriculture, specifying targets for commercial banks to lend a certain percentage of their Adjusted Net Bank Credit (ANBC) to priority sectors.
4. Under the Lead Bank Scheme (1969), each bank was assigned the task to lend to a lead bank, responsible for acting as a consortium for other banks in the district.
5. Based on the Narasimham Committee (1975) report, Regional Rural Banks (RRBs) were established to cater to the credit needs of small and marginal farmers.
6. NABARD was set up in 1982 as an apex refinancing institution for all rural financial institutions.
7. The Service Area Approach was introduced in 1989 to ensure planned and orderly deployment of credit in rural areas.
8. The Kisan Credit Card (KCC) Scheme was launched in 1998 to provide timely and adequate credit.
9. Agriculture Infrastructure Fund (AIF) was unveiled in 2020 to provide medium-to-long-term cover for post-harvest management infrastructure and community farming assets.
10. Farmer Producer Organization (FPOs) encourage collective action among the farmers to improve their access to credit, markets and technology.

Role of Agri-Credit in the Indian Economy:

• Timely and adequate availability of credit facilitates the purchase of necessary inputs (seeds, fertlizers) and investment in modern technology, generating better agricultural output.
• Empowers farmers to adopt advanced farming practices, machinery and irrigation techniques.
• Reduces indebtedness and provides an alternative to exploitative moneylenders, preventing farmers from falling into debt traps.
• Promotes overall rural development by boosting agricultural incomes and creating allied economic activities including animal husbandry, darying and fisheries.
• Ensures a stable food supply by supporing agricultural production. 

Challenges in Agricultural Credit Delivery:

• Limited access to small and marginal farmers due to lack of collateral, land titles or complex procedures.
• Uneven credit distribution leads to regional disparities in terms of access to agricultural credit.
• Despite the existence of government schemes to enable access to institutional sources of credit, dependence on informal sources of credit still remains high, responsible for farmers' suicides.
• The sanctioned loan amount is often inadequate to meet the basic needs of the farmers and delays in disbursement further exacerbates their hardship.
• Frequent loan waivers only provide a shor-term help, ignoring the necessity of a viable long-term strategy.
• Lack of proper land records makes it difficult for tenant farmers and sharecroppers to access institutional credit.

Government Initiatives to promote Agricultural Credit:

• The Interest Subvention Scheme provides interest subvention to banks to enable them to provide short-term crop loans up to ₹3 lakh at 7% per annum.
• PM-KISAN provides ₹6000 per year to eligible farmer families in three equal installments of ₹2000 every four months.

(For other schemes, please refer to History of Agricultural Credit in India)

Way Forward:

• Expand the scope of institutional credit, especially for small and marginal farmers, tenant farmers and sharecroppers.
• Adopt specific strategies to enhance credit flow to underserved regions, through targeted lending.
• Promote long-term investment for sustainable agricultural development.
• Leverage technology, including data analytics and digital platforms for efficient credit assessment, disbursement and monitoring.
• Empower FPOs to act as effective intermediaries for credit delivery and collective bargaining.

Conclusion: Agriculture credit is not merely a financial instrument. It is a powerful tool for socio-economic transformation in rural India. By addressing the existing gaps and embracing innovative approaches, agricultural credit can truly unlock the full potential of the sector, ensuring food security, farmer prosperity and a resilient agricultural economy for the nation.