Farmers’ share in agri credit rises in positive sign for sector
In 2003-04, the share of investment credit in total agriculture credit was 37% , which went up to 42 % in 2005-06 during the previous UPA regime. However, it fell to 25% in 2013-14.
New Delhi: The share of term loans taken by farmers -- funds that go solely into agricultural investment -- to total agricultural credit has increased from 24.95% in 2013-14 to 41.51% in 2021-22, reversing a disquieting declining trend, official data accessed by HT show.
Millions of farmers in India rely on short-term, cheap crop loans, subsidised by banks, to purchase inputs such as seeds and fertilisers every season. The government also provides so-called term loans, which unlike crop loans, are availed to make capital investment in agriculture critical for growth.
In 2003-04, the share of investment credit in total agriculture credit was 37% , which went up to 42 % in 2005-06 during the previous UPA regime. However, it fell to 25% in 2013-14.
According to latest official data from a background note prepared by the ministry of agriculture on “the functioning of the agricultural credit system in the country”, the share of investment credit in total agriculture credit stood at 41% during 2021-22, one percentage point below its peak of 42% achieved in 2006-06.
“It’s an immutable fact that growth comes from investment. I would say the share of investment credit to total loans should be between 45% and 50% and not vary significantly from year to year. Such a trend will be trasnformative,” said K Mani, a former faculty member at the Tamil Nadu Agricultural University.
Capital investment refers to any spending on farm assets, such as a tractor or machinery, for which farmers need to pay higher interest.
The government subsidises short-term crop loans to make farming cheaper. Moreover, banks must necessarily lend to farmers because agriculture is a “priority lending sector”. For instance, all scheduled commercial banks must direct 40% of their adjusted net bank credit towards priority sector lending.
Farmers get crop loans at a cheaper 7% as compared to consumer loans, which range between 12% and 14%. For those making timely repayments, the effective rate of interest is even lower at 4%.
The growth in agriculture credit during the eight-year period (2014-15 to 2021-22) has ranged from 8.1% to 17.6%, with average growth rate being 12.3%. Crop loan disbursement increased at the compound Annual Growth Rate (CAGR) of 7.1%, while term loans (investment credit) increased at CAGR of 17.5%, during the same period, the data showed.
“A continuous increase in the share of term loan would lead to the much-needed increase in capital formation in agriculture, and the consequent increase in agricultural productivity,” a confidential report accessed by HT said.
During 2021-22, Government of India fixed the Agriculture Credit disbursement Target at Rs. 16,50,000 crore. Against this banks achieved ₹18,63,363 crore which was 113% of the target.
Government of India has fixed the Agriculture Credit disbursement Target at Rs.18.5 lakh crore for the year 2022-23. So far, banks and other agencies have disbursed ₹13.7 lakh, which is still 25% short of target.
India’s farm sector, which contributes 17% to GDP, has been remarkably steady and resilient to Covid shocks. The gross value added (GVA) in agriculture and allied activities, on an inflation-adjusted basis, is expected to grow by 3.5% in the financial year 2022-23 (FY23), which is close to its long-term growth trend, according to the first advance estimate of national income for FY23 released this month.
According to Census 2011, roughly 55% of the total workers in the country were employed in agriculture and allied sector. However, the share of workers engaged in agriculture sector has been declining. A Labour Bureau Report in 2015-16, said 46.1% of the working population was employed in agriculture and allied sector. Further, as per International Labour Organization estimate employment in agriculture sector as percentage of the total employment was approximately 44% in 2018.