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govt financing of agriculture (agricultural credit (challenges…
govt financing of agriculture
subsidies
fertilisers
earlier - only given to urea manufacturers ie, neither to any other fertilizer nor it is given to farmer
issues
urea fetilizer
heavily regulated industry
this subsidy is decided considering the production cost - calculated by survey conducted in companies
hence, companies try to artificially inflate the production cost - will result in to more subsidies - higher profits
govt decides market price and subsidies for urea manufacturers(both public and private)
diversion of urea to industries for non agri purposes
to solve this, now urea company gets subsidy only when purchase has been made by farmer authenticated by his aadhar or KCC
ie, its DBT to firms based on point of sale
leads to leakage of urea subsidy and black marketing
non urea fertilizers
way forward
DBT of urea subsidy to beneficiary farmers' bank accounts
MSP
price fluctuation of agri products
agricultural credit
brief history
phase 1(1951-68)
primary sector given preference from 1st FYPin 1951
phase 2(1970-69)
nationalisation of banks led to opening of rural/semi-urban bank branches
phase 3(1991 onwards)
mechanisms/ways
priority sector lending
18% of ANBC(adjusted net bank credit) to agri sector and
sub target of 8% of ANBC to small and marginal farmers
interest subvention scheme
introduced in 2006-07
of 2% and additional 3% subvention on short term crop loans
implemented by NABARD and RBI
self help group - bank linkage program
self help group
informal group of people, generally women of similar social strata
they contribute money and give the money to a member for her to start a business
saving oriented group
linking with banks helps SHG to raise collateral free credit for its members
loan can b used for both income generation activity or livelihood activities
joint liability group scheme
initiated by NABARD in 2006
informal group 0f 5-10 individuals coming together to avail bank loan against mutual guarantee
has helped sharecroppers and landless farmers having no land rights
kisan credit card scheme
introduced in 998
provide credit for agri and consumption activities to farmer households
challenges
substantial share of non institutional agri credit
around 28% - as per All India rural financial inclusion survey, 2015
reasons
reluctance of banks to give credit esp to small & marginal farmers (make 85% of agri workforce)
reasons
volatility of income
absence of land records - hence they have no collateral
limited reach of banks esp in rural areas
history
share around independence - 92%
decreased steadily and sharply after 1969 nationalisation
reached 50% around 1980s
stagnated after 1991 LPG reforms as banks started lending more to commercial purposes
regional disparities
central, eastern and NE regions have vey low agri credit as % of agri-GDP
poor share to allied sectors
6-7% of agri credit
though their share in agri output at 38-42%
diversion of agri loans for non agri purposes
reasons
institutional credit is largely available only to big farmers, who take non agri loans under the ambit of agri loan -why
farmer gets interest subvention
bank fulfil PSL quota
this leads to - non increment in agri output despite high agri credit
skewed share of cooperative banks (15%) and rural regional banks(5%) in institutional credit wrt commercial banks(78-80%)
though banks have achieved overall PSL target of 40%, they have failed to achieve 18% PSL target of agri credit
interest subvention scheme has skewed distribution in favour of production credit against crop-related investment credit important for long term sustainability
kisan credit card
only 45-50 % farmers possess KCCs as per agri census 2015-16
farmers are unable to get credit for consumption requirements
10% loan limit on consumption requirements is inadequate
Absence of land leasing framework
lack of documents reduces accessibility of formal credit to tenant farmers
absence of tenure rights reduced incentives for tenant farmers to invest in agri land
way forward
to increase reach of formal credit
esp for small and marginal farmers
digitisation land records
for tenant/landless farmers
formulation of model land leasing act
to increase credit for allied activities
set separate targets under PSL guidelines
learn from china
arable land in china is 0.086 hectares per person compared to0.118 in india
yet their productivity is much higher
reason - consolidation of small farms into large units by ways of - family farms and cooperatives, and long term leasing
issue of farm loan waiver
+ves/rationale
issues
destroys honest credit culture - incentivises farmers to default strategically in anticipation of future bailouts
forces bank to invest in RIDF rather than meeting PSL agri targets