The Expert Group on Investment Credit in Agriculture has submitted its report. The committee's main task was to find ways to ensure that the government's target of doubling credit to the agricultural sector in three years is met, to identify roadblocks in the way of achieving that target and to suggest remedial measures. | |
| The report reiterates well-known information about the decline of public investment in agriculture, the fall in agriculture's share in the country's gross domestic product, and the fact that while the proportion of government expenditure allocated to agriculture has declined, much of it is on the revenue account. |
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| The factors constraining agricultural investment are identified as meagre growth in minor irrigation and farm mechanisation, declining public sector investment, limited credit absorptive capacity, lack of effective mechanism for technology transfer and poor extension services, limited infrastructure for agro-processing, storage, warehousing, value addition and marketing, restrictions on purchases outside the mandis, inadequate risk mitigation mechanisms, and the non-availability of land records. |
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| So far as bank advances to agriculture are concerned, these are constrained by high transaction costs, structural deficiencies in the rural credit delivery system resulting in limited outreach, issues related to collateral, the high-risk nature of farm loans and the branch centric approach, which leads to high manpower costs. |
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| There is nothing new in all this, nor are the remedies suggested novel. They include the computerisation of land records, strengthening rural infrastructure, improving marketing and the like. |
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| However, what's new is the approach and emphasis of the committee. It notes, for instance, that Indian farming is moving away from agriculture to agri-business, and stresses the importance of building the supply chain. |
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| The point that absorptive capacity is a major constraint that blocks increasing agricultural credit is well made. Some of the suggestions made for improving the flow of rural credit address the heart of the issue, and are welcome. |
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| For example, the committee recommends the adoption of the agency model of credit delivery, with self-help groups, NGOs and other local organisations being used to deliver credit in the rural areas. |
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| The outsourcing of loan monitoring activities and the need for risk mitigation products as a means to enhance credit delivery are also suggestions that need to be adopted. |
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| Of special importance is the proposal to allow banks to participate in commodity futures. That would not only provide banks with a protection against default on agricultural loans, it would also improve volumes in the commodity markets, increasing their depth. |
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| Also interesting are the many successful private initiatives in developing agriculture mentioned in the report. ITC's e-choupal network, Hindustan Lever's Project Shakti which connects self-help groups with business opportunities, Rabo India's establishment of agro-service centres in co-operation with agro-input companies, and weather insurance by ICICI Lombard are cases in point. |
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| The promise of low-cost credit delivery methods via internet kiosks in rural areas is also being looked into by several banks that recognise the potential of Indian agriculture. |
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| Clearly, the way ahead lies in carrying forward these private sector and NGO initiatives and finding innovative solutions to age-old problems, rather than relying on the old methods of throwing public money at a problem. |
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