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Enhanced credit to agriculture is normally associated with buoyancy in the sector. However, a closer look at the data reveals otherwise. The credit system in India is highly underdeveloped with only 37% of farmers having access to institutional credit. While the growth in credit disbursement was 17% in the last five years, the number of farmers that have credit cover increased by only 4%. The resulting lack of funds, year after year, compels the farmers to rely on unofficial sources of credits such as local money lenders, creating a vicious circle of indebtedness.

It is clear that the government rolls out funds in excess but where is the excessive liquidity pushed to? Who is benefitting from increased credit in the economy?

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The credit disbursement is clearly skewed in favour of medium and rich farmers. Small and marginal farmers which consist of 84% of the total farmers receive only 27% of credit by commercial banks. As a result, most small and marginal farmers end up with limited or no disposable income to meet the crop cycle requirements. To prevent risk of default, farmers use a lower-quality input, resulting in a low yielding crop establishing the same old cycle of farmer’s indebtedness and agrarian crisis.

According to data published by the Reserve Bank of India (RBI), the credit in the economy has increased to 755% from 2000 to 2010. To make the credit system efficient, funds need to be made accessible to the farmers correctly.  The recently launched Jan Dhan Yojana Scheme correctly targets financial inclusion to ensure access of financial services to non-bankable people, in an affordable way. Statistics prove that providing access to financial services in rural India has been a priority for the current government. However, such a change could only be bought by making the financial institutions viable and strong and bringing in a new mission in the sector akin to the green revolution in 1970’s.

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