This refers to “Misuse of agricultural credit” (September 19). It has been rightly pointed out that there is disproportional disbursement of rural credit far in excess with their actual output. The basic flaw in agricultural and allied credit is the multiplicity of institutions playing various roles without any coordination. Banks disburse credit purely from the financial angle to meet priority sector norms -- that is, target-oriented financial lending. Their approach to rural finance is safety-oriented and directed towards credit recovery to prevent NPAs (non-performing assets) and ultimate accountability of the disbursing official. The seasonal requirements under agriculture including the period for cultivation and harvesting apart from the technicalities involved in the process are known to them more in theory than in practice. Untimely credit defeats the purpose.
Then there is pressure on land due to successive inheritances reducing the feasibility of cultivation. The purpose of subsidy is to partially finance agricultural and allied activity; it should not be given as a dole. However, the latter is the practice than the exception. Lastly, the technical institutions also maintain safety in their approach thus benefiting large farmers at the cost of small and marginal ones. The financially backward farmers follow traditional styles of cultivation as they are neither financially strong nor are aware of improved modes of cultivation. For the small and marginal farmer, the only way to raise funds is diversification of portfolio and borrowing from moneylenders at exorbitant rates of interest. A solution to this problem is to do away with the multiplicity of institutions and set up a single body, coordinating technical, infrastructural and financial assistance functions apart from furnishing information on market pricing for a specific geographical area.
The same applies to allied activities also like fishery, forestry and animal husbandry. This will ensure timely financial disbursement, product quality, functional control and return on investment. This will also be in line with the single window approach for credit being emphasised by the government. Capital investment for such an enterprise should be made by the government, banks and technical institutions. Cooperative farming should be made mandatory depending on land area to ensure efficiency of cultivation. Subsidy should be the capital for the institution and not personal funding. Personal subsidy should be replaced by institutional expertise. The capital investment and management skills should be jointly vested with banks, technical institutions and government in consultation with the gram panchayats to ensure credit is directed in a timely manner. Finally, a uniform budgetary target for such institutions is a must to ensure coordinated functioning. Ultimately, it is social confidence that will prevent misdirected credit, the dependence on moneylenders and the removal of rural indebtedness. This may appear idealistic but will ultimately save costs.
C Gopinath Nair, Kochi
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