Entire Agri Value Chain Needs Credit Support : Daily Current Affairs

Relevance: GS-3: Indian Economy, mobilization of resources, growth, development and employment.

Key Phrases: GTSME, MSMEs, Gross value added, Agriculture and allied activities, Agricultural Credit, Small Farmers Agribusiness, Consortium, NABARD, Aatmanirbhar package.

Why in News?

A credit guarantee for all cultivators, akin to CGTSME for MSMEs and covering KCC loans, will help tenant farmers as well.

Context:

At last count, the Gross Value Added (GVA) through agriculture, forestry and fishing constituting the primary sector of our economy was estimated at ₹39.80-lakh crore, as per the figures released by the Ministry of Statistics and Programme Implementation on May 31. In this category, forestry is a segment which has a minor share compared to the other two.
This figure also does not include the contribution of the food processing industry which would include activities like dairy products, ready-to-eat items, processed/packaged food, juices/beverages and the like which can be categorised as part of the agricultural value chain, constituting the forward linkages, reaching up to the consumer.
According to a KPMG report of 2021, the output of the Indian food processing sector itself was around $263 billion (₹20-lakh crore approximately) in 2020.

Do you know?

Gross value added (GVA) is an economic productivity metric that measures the contribution of a corporate subsidiary, company, or municipality to an economy, producer, sector, or region. GVA is the output of the country less the intermediate consumption, which is the difference between gross output and net output.
The Ministry of MSMEs, GoI and Small Industries Development Bank of India (SIDBI) established a trust named Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) to implement the Credit Guarantee Fund Scheme (CGS) for Micro and Small Enterprises.
Credit Guarantee Fund Scheme (CGS) for Micro and Small Enterprises was launched in 2000 by the Government of India (GoI) to make available collateral-free credit to the micro and small enterprise sector.
The corpus of CGTMSE is being contributed by the GoI and SIDBI in the ratio of 4:1 respectively.
KPMG International Limited is a British-Dutch multinational professional services network, and one of the Big Four accounting organizations.
The name "KPMG" stands for "Klynveld Peat Marwick Goerdeler". Headquartered in Amstelveen, Netherlands, although incorporated in the United Kingdom, KPMG is a network of firms in 145 countries and has three lines of services:
- financial audit;
- tax and
- advisory

Credit availability for agriculture and allied activities:

Credit availability for agriculture and allied activities has been facilitated by commercial banks and the cooperatives. The total of outstanding loans for agriculture/allied activities as of March, 2022 is estimated at about ₹22-lakh crore, summing up the loans from commercial banks, regional rural banks, cooperatives and small finance banks.
Thus there is a prima facie gap of ₹23-lakh crore between output value and credit deployed in agriculture. While the entire gap may not be available for funding because of the availability of internal credit inter se among stakeholders (like farmers getting fertilisers on credit/procurers or arthias giving advance money to farmers, etc.) there is definitely a scope for further credit support to what can be broadly termed the entire agri value chain — from farm to fork — as it were.
Even out of the existing credit support available for the agricultural sector it is estimated that the share of institutional credit has reached a level of about only 70 per cent now. If the country has to modernise agricultural practices and enhance the flow of credit to all segments of the agri value chain, there is a pressing need for a systemic credit accelerator in the agricultural segment.

CGTMSE scheme for MSMEs can be a model for Agriculture credit

India’s MSME sector has benefited greatly through the popular CGTMSE scheme administered by SIDBI under which all loans to the MSME segment up to ₹2 crore are covered by a credit guarantee
This benefits both the borrower and the lender. No collateral security needs to be offered for loans up to ₹2 crore and the credit cost for lenders also comes down drastically because of the availability of the CGTMSE guarantee scheme. Furthermore, the credit risk weightage for guaranteed loans being zero as per Basel norms, the returns to banks from such loans are also higher.

Problems regarding Agricultural Credit in India

Insufficiency of rural credit: In spite of the expansion of rural credit structure, the volume of rural credit in the country is still insufficient as compared to its growing requirement arising out of the increase in prices of agricultural inputs.
Inadequate amount of sanction of loans: The amount of loan sanctioned to the farmers by the agencies is also very much inadequate for meeting their different aspects ofagricultural operations. Considering the amount of loan sanctioned as inadequate and insignificant, the farmers often divert such loan for unproductive purposes and thereby dilute the very purpose of such loan.
Lesser attention of poor farmers: Rural credit agencies and its schemes have failed to meet the needs of the small and marginal farmers. Thus, lesser attention has been given on the credit needs of the needy farmers whereas the comparatively well-to-do farmers are getting more attention from the credit agencies for their better credit worthiness.
Inadequate institutional coverage: In India, the institutional credit arrangement continues to be inadequate as compared to its growing needs. The development of co-operative credit institutions like Primary agricultural credit societies, land development banks, commercial banks and regional rural banks, have failed to cover the entire rural farmers of the country.

Status of agricultural indebtedness in India

More than half of India’s agricultural households were in debt, with an average outstanding of Rs 74,121, according to the latest ‘Situation Assessment of Agricultural Households and Land Holdings of Households in Rural India, 2019’ released September 10, 2021.
The percentage of households in debt, however, reduced slightly from 51.9 per cent as seen in the previous survey in 2013; but the average debt jumped 57 per cent from Rs 47,000 in 2013.
The National Statistical Office (NSO) reported the data based on its 77th round of survey of more than 45,000 such households conducted January 1-December 31, 2019.
The 2019 survey found Andhra Pradesh to have the highest average outstanding loan, at Rs 2.45 lakh, among 28 States. The State also had the highest proportion (93.2 per cent) of agricultural households under debt, followed by Telangana (91.7 per cent) and Kerala (69.9 per cent).

Credit guarantee schemes for agricultural sector:

At present, there are three credit guarantee schemes in India’s agricultural sector.
The Small Farmers Agri-business Consortium (SFAC) under the Ministry of Agriculture has a guarantee scheme called Nabsanrakshan, for bank loans to Farmer Producer Companies (FPCs), while NABARD had recently introduced a guarantee scheme for loans to Farmer Producer Organisations (FPOs).
For the uninitiated, FPC is a corporate entity under the Companies Act, 2013 and is one class of FPOs, which could have any other legal status, like society/trust/cooperative, etc. Loans under the Agri Infra Fund scheme, part of the Atmanirbhar package, have been covered under the CGTSME scheme up to ₹2 crore
But all other loans including the ubiquitous KCC loans (which constitute 50 per cent of the outstanding agri loans) do not have any credit guarantee umbrella.

How the credit guarantee scheme helps?

An omnibus credit guarantee cover for all agri value chain loans up to ₹2 crore (including KCCs, may be with a lower claim coverage) can be the next big step in agri credit in the country.
It will infuse new vigour to institutional agri lending across the board.
It will help even tenant/leasehold farmers get bank loans.
It will help mitigate credit costs to banks that too at a time when the Government has mandated banks to lend KCCs at 7 per cent, for loans up to ₹3 lakh.
Also, millions of tenant farmers who do not get any loans as they do not have land ownership can be “included financially”. With a credit guarantee cover, it would be possible to structure loans to them too, with certain caveats.

Source: The Hindu BL

Mains Question:

Q. Discuss the problems regarding Agricultural and Allied activities Credit in India. Suggest measure to tackle these problems? Examine.