Relevance: GS-3 : E-technology in the aid of farmers Issues related to direct and indirect farm subsidies and minimum support prices;

Key Phrases: Agriculture Credit System, Interest Subvention Scheme, FPOs

Why in News?

• The government has increased the agricultural credit target to Rs 18 lakh crore for the 2022-23 fiscal from Rs 16.50 lakh crore for the current fiscal.
• This year, the target was Rs 16.50 lakh crore out of which 75 per cent has been disbursed.
  • About Rs 7.36 lakh crore agri-credit has been disbursed to farmers during the first six months of the 2021-22 fiscal.

Key Highlights

• Normally, farm loans attract an interest rate of 9%. However, the government has been providing interest subvention to make available short-term crop loans at an affordable rate and help boost farm output.
• The government is providing a 2% interest subsidy to ensure farmers get short-term farm loans of up to Rs 3 lakh at an effective rate of 7% per annum.
• An additional incentive of 3% is being given to farmers for prompt repayment of loans within the due date, making the effective interest rate 4%.
• To enhance coverage of small and marginal farmers in the formal credit system, the RBI has decided to raise the limit for collateral-free agriculture loans from Rs1 lakh to Rs1.6 lakh.

About Agriculture Credit System

• Agricultural credit is considered as one of the most basic inputs for conducting all agricultural development programs.
• After independence, the Government adopted the institutional credit approach through various agencies like co-operatives, commercial banks, regional rural banks etc. to provide adequate credit to farmers, at a cheaper rate of interest.
• Moreover, with growing modernization of agriculture during the post-green revolution period, the requirement of agricultural credit has increased further in recent years.
• The government has been raising credit target for the farm sector every year, with the aim of doubling farmers’ income by 2022.
• The agricultural credit flow has increased consistently over the years, exceeding the target set for each fiscal.
• Agriculture credit disbursements have grown at a decent pace only in the last five to six years.
  • Credit worth Rs 11.68 lakh crore was given to farmers in 2017-18, much higher than the Rs 10 lakh crore target set for that year.
  • Similarly, crop loans worth Rs 10.66 lakh crore were disbursed in the financial 2016-17, higher than the credit target of Rs 9 lakh crore.
• At the start of the millennium, achieving a disbursement target of ₹64,000 crore (2001-02) seemed like an uphill task for banks, whereas in 2020-21 they surpassed the target of ₹15 lakh crore.
• The concerted efforts of the government, RBI, Nabard and rural financial institutions (commercial banks, cooperative banks and RRBs) have streamlined the agriculture credit system to meet the requirements of the last mile.

Changing Profile of the Agricultural Households

• Today, rural India contributes close to 30 per cent of the country’s GDP.
• Gone are the days when ‘rural’ and ‘agriculture’ went hand-in-hand and the role of policy should therefore grow beyond agriculture credit to all-encompassing rural credit.
• As per the latest Situation Assessment Survey of agricultural households (NSSO, Report 587) the share of income from crop production out of the average total monthly income (₹10,218) of an agricultural household was 37 per cent.
  • In other words, for an average agricultural household, almost 63 per cent of its monthly income comprises non-crop production activities!
• This is proof that the profile of the agricultural households has shifted away from solely crop production.

Scope and Role of Agriculture Credit System (ACS) in Various Spheres

• Keeping in mind the evolving needs of the agri value chains, the agriculture credit system has an important role to play hence better equipping the system of agri-credit.
• The nature of requirements, mechanics of lending, collaterals and the approach itself perhaps call for a hard reorientation.

1. Scope of ACS in Interest Subvention Scheme

• One of the important dimensions of the agriculture credit policy is the interest subvention scheme introduced to provide farmers access to affordable credit.
• The way the scheme is structured currently has limitations in directing credit to a particular crop or a region.
• However, with the advent of data-based technology and fintech companies increasingly playing an important role, it is possible to adopt a differentiated need-based approach.
• This would enhance the effectiveness of subvented credit.

2. Scope of ACS in FPOs

• Though currently, FPOs are outside the purview of subvented credit, they are fast emerging as the new vehicle to spearhead value chain financing in agriculture.
• Furthermore, as most members of FPOs are small and marginal farmers it not only fulfills the eligibility criteria but presents an additional channel for furthering cheaper directed credit.
• This will have a dual impact - it will enhance the productivity of credit and at the same time direct the credit flow to the desired outcome to fill an existing gap.
• The agritech fund under Nabard announced in the Budget 2022 is a welcome move. Under Nabard’s expert stewardship the fund can be instrumental in helping agri-entrepreneurs and millions of farmers via FPOs

3. Scope of ACS in Horticulture

• Another area that has escaped scrutiny till now is the impending impact of increased demand for horticulture production on the agriculture credit system.
• The current agriculture credit system is perhaps tilted more towards meeting the needs of foodgrain production systems as up until 2012, when foodgrain production was higher than horticulture production.
• Today, the scope of value addition in horticulture crops, and improved farmer profits, is significant.

4. Other Role of ACS

• Efficient storage, logistics and transportation require a certain degree of specialization and intensive capital investments.
  • Since returns may be low in the initial period of investment there exists a definitive case to provide either fiscal incentives or subsidies or a combination of both to encourage investments and offset the low returns in the initial years.
• Rural aspirations are on the rise and need to be met at a fast pace to bridge the rural-urban divide and address income inequalities.
  • Larger rural infrastructure investment through continued enhanced outlays for the Rural Infrastructure Development Fund (RIDF) will catalyse growth in rural areas and generate employment.
  • Dovetailing public investment creation with private investments through micro plans can enhance indirect employment generation in rural areas and boost the credit absorption capacity.
• The Environment, Social and Governance (ESG) requirements provide a huge potential but currently, the protocols have not developed to the extent required so that lending based on them can become transformational.

Conclusion

• In Formula one racing the pit stop area is critical where the formula cars pause for any repairs, maintenance and small adjustments to complete the race successfully. The time for a pit stop for the agri credit system is here!

Source: The Hindu BL

Mains Question:

Q. Discuss the problems with the Agricultural Credit System in India? Is it the only solution for eliminating the former's problems?