New Delhi: Misdirection in farm loans, increase in indirect credit, imbalances in credit between states and crops, misuse of interest subvention are eroding farm credit effectiveness according to just concluded study by The Associated Chamber of Commerce and Industry of India (ASSOCHAM).

Releasing the study on “Farm Credit” here on Sunday, the ASSOCHAM has called for major reforms in agricultural credit disbursement to make the virtual doubling of farm credit every year boost production in this year of low rainfall land also give corresponding dose of increase in output in the coming years.

In an analysis of agricultural credit over the last decade, the chamber listed misdirection in farm loans, increase in proportion of indirect credit by the banks, misuse of interest rate subvention for diverting credit to other sectors, imbalances in quantity of credit in relation to the size of the farms and the crops they raise, and virtual exclusion of small and marginal farms from institutional credit as some of the major problems besetting this sector.

“It is not enough to raise the credit availability to agriculture.  It is equally important to ensure that this credit goes to the needy and also disbursement has a correlation with the farming situation at individual and collective level”, says Mr. D S Rawat, Secretary General ASSOCHAM.

The study has underlined the need to reduce transmission costs, correct structural deficiencies in credit policy, issues of credit worthiness should be resolved quickly; problems of lack of collaterals for farm loans should be attended to low value of loans per hectare leads to under utilisation or even diversion.

The concern over disparities in loans to different sectors like small and marginal farmers and large farmers needs to be addressed, “Risk aversion” tendency of bankers generally towards agriculture and especially towards small and marginal farmers should be overcome.

The ASSOCHAM study pointed out that “One of the most significant facts about agriculture in the last few years is the massive increase in public sector, mostly Government support to credit to farming operations.  Assuming that the credit is effectively disbursed this massive increase could be seen as a stabiliser and driver of the agricultural economy of the country along with other factors. According to the Reserve Bank of India between year 2000 and 2010 farm loans increased by 755 per cent to Rs. 3,90,000 crores. There has been a further increase with each budget.  In 2011-12 it was Rs. 4,75,000 and  in 2012-13 Rs. 5,75,00 crores.   The following table of recent years’ farm credit by the government is really heart-warming:

Agricultural credit allocated from the Central Government
2006-07 Rs. 2.29 lakh crores
2009-10 Rs.  3.90 lakh crores
2010-11 Rs. 4.68  lakh crores
2011-12 Rs. 4.76 lakh crores
2012-13 Rs. 5.75 lakh crores (proposed)

ASSOCHAM study also pointed out that despite the massive increase in Government provision of credit to the agricultural sector over the last one decade, the proportion of total bank credit to this sector in relation to the total bank credit remained more or less the same.  This revealed that despite the massive increase in credit to the sector, it was still inadequate considering the increasing intensity of farming, rise in output costs and energy intensive farming techniques.