Is agriculture credit being used for the right purpose? RBI questions

Points to data showing its diversion and uneven distribution across many states

Is farm credit going into the right hands? Well, the country’s apex bank has questioned it.

In the latest report of its Internal Working Group to review agricultural credit, the Reserve Bank of India (RBI) says it found that in some states, credit disbursal to the farm sector was higher than their agricultural gross domestic (GDP) product.

So, indicating the possibility of diversion of credit for non-agricultural purposes. Kerala, Tamil Nadu, Telangana, Karnataka and Punjab came in this category.

In Kerala and Tamil Nadu, according to the report, agricultural credit was almost 180 per cent more than the average agriculture GDP of the state in the years 2015, 2016 and 2017. In Andhra, the ratio of crop loans disbursed to input requirement in 2014, 2015 and 2016 was a staggering 7.5 times more. Also raising the question on whether the credit is being used as intended.

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. 

It was six times more in Kerala, four times more in Telangana, Tamil Nadu and Uttarakhand, and three times more in Punjab.

In contrast, Jharkhand, West Bengal, Chhattisgarh, Bihar, Odisha, Maharashtra, Uttar Pradesh and Rajasthan were not getting credit even to meet their basic input requirement of seed, organic manure, fertiliser, repair, maintenance, irrigation charges, electricity, pesticides and insecticides. Labour charges and lease rentals were not included in this calculation.

In 2018-19, the government had fixed a target of disbursing Rs 11 trillion in agricultural credit. The achievement was 114 per cent, according to a written reply in Parliament. In previous years, too, banks consistently exceeded their agricultural credit disbursal target. However, the big question is whether it is going to the right person (s).

Also, worrying is that much of this goes towards short-term farm credit. And, its share in relation to 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 blamed the prompt repayment scheme introduced in 2009-10, wherein farmers got an additional three per cent subsidy on interest for short-term crop loans, for tilting the balance against investment credit. The report says flow of investment credit is important for long-term sustainability of the sector.

It also notes the neglect of banks to the allied sector — livestock, fisheries, dairying and forestry. Between 2014 and 2016, the allied sector contributed significantly to the agricultural output, with a share of 38-42 per cent. However, its share in total agricultural credit extended by banks to all was only six to seven per cent.

Though small and marginal farmers constituted 86.2 per cent of total operated holdings and have 47.3 per cent share in the operated area, only 40.9 per cent of them were covered by scheduled commercial banks. Out another way, the bulk of loans disbursed by commercial banks, which formed the majority of farm credit, was cornered by big land holders.