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Agricultural credit is the key element in modernising agriculture in India. Though the amount of credit in the economy has increased over the years, several weaknesses have crept in which have threatened the sustainability of financial institutions. To curb such practices, the government has established various policies and institutions to increase the credit absorption capacity of farmers in rural India. But to what level has the measures reaped benefits? Here we analyse a few of them:

  • The share of credit disbursement by co-operative banks has been on a declining trend since a decade. It has dropped from 31% in 2003 to 18% in 2012. Only 29% of the total credit disbursed by co-operative banks has been made available to small and marginal farmers.
  • First established in 1975, regional rural banks (RRB’s) were devised for granting loans and advances to small and marginal farmers, agricultural labourers, rural artisans at an interest rate lower than market rates. However, today, total credit disbursed by the RRB’s hardly comprises 10% advances to agriculture sector.
  • The recently launched Jan Dhan Yojana Scheme will hope to greatly relieve farmers by correctly targeting financial inclusion to ensure access of financial services to non-bankable people in an affordable manner.
  • Started with the objective of extending banking to the marginal farmers, landless laborers etc. self-help group (SHG) has been in favour of farmers. According to a study by NABARD, out of those below the poverty line in the pre-SHG situation, 15 per cent moved above the poverty line. SHGs therefore have played a large role in the availability of credit to farmers.

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  • Few schemes such as weather based schemes are devised to help the farmers with the insurance cover for weather related risks such as rainfall, humidity, temperature etc. Private Banks like ICICI & HDFC have ventured into this field and tied-up with the state government in order to provide insurance to farmers. However, the government registers only those farmers who have taken a loan from formal channels. This leaves out nearly 75% of the total farmer population, who have no access to formal credit, out of this scheme.

While credit facilitates the liquidity to the farmers, it can’t, single-handedly produce desired results. If credit is available to the farmers, they can only repay it if they get remunerative price for their products. In such a case, the government needs to indirectly fund the farmers by making farm inputs affordable and market selling price viable. This will definitely improve the productivity as well as the standards of living of the farmers.

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