Agricultural lending and financing play a crucial role in India’s agriculture sector, which employs over 50% of the country’s workforce and contributes around 17-18% to the country’s Gross Domestic Product (GDP). The availability of affordable credit is essential for farmers to invest in modern agricultural practices, purchase quality inputs, and increase productivity.
In India, agricultural financing is provided by various institutions, including commercial banks, regional rural banks, cooperative banks, and microfinance institutions. Apart from traditional lending, agricultural financing in India also involves various other forms of credit support, such as crop loans, Kisan Credit Card (KCC) scheme, agricultural term loans, and agricultural insurance. These schemes aim to provide financial assistance to farmers for crop production, purchase of agricultural inputs, and capital investment in agriculture.
Crop loans: Crop loans are short-term loans provided to farmers for the cultivation of crops. These loans are sanctioned for a crop season, and the repayment period typically ranges from 6-12 months. The loans are provided to meet the farmers’ cultivation expenses, such as the purchase of seeds, fertilizers, pesticides, and other inputs.
According to the Reserve Bank of India (RBI), the outstanding crop loan amount disbursed by banks in India increased from INR 8,55,328 crore in March 2020 to INR 10,38,954 crore in March 2021, registering a YoY growth of 21.4%. This increase in crop loans helped farmers to overcome the financial stress caused by the COVID-19 pandemic.
Kisan Credit Card (KCC) scheme: The Kisan Credit Card (KCC) scheme was launched in 1998 by the Government of India to provide affordable credit to farmers for crop production, animal husbandry, and other agricultural activities. KCCs are issued by banks and other financial institutions and are a type of revolving credit, which means that the credit limit can be used, repaid, and used again.
As of March 2021, around 19.67 crore KCCs have been issued, with a credit limit of over INR 6.78 lakh crore. The scheme has been instrumental in providing timely and adequate credit to farmers, enabling them to purchase quality inputs and adopt modern agricultural practices.
Agricultural term loans: Agricultural term loans are long-term loans provided to farmers for capital investment in agriculture, such as the purchase of tractors, farm machinery, and construction of farmhouses. These loans have a longer repayment period, typically ranging from 3-10 years.
According to the RBI, the outstanding agricultural term loan amount disbursed by banks in India increased from INR 2,10,491 crore in March 2020 to INR 2,50,378 crore in March 2021, registering a YoY growth of 19%.
The various agricultural lending and financing schemes in India have also helped in increasing the number of formal credit sources available to farmers. This has reduced their dependence on informal sources of credit, such as moneylenders, who often charge exorbitant interest rates. Additionally, agricultural financing has helped in creating job opportunities in rural areas. The increased credit flow has led to the establishment of agribusinesses and agro-industries, which have created employment opportunities for rural youth. Agricultural insurance schemes such as PMFBY have played a crucial role in protecting farmers from crop losses due to natural calamities. The availability of insurance coverage has reduced the financial burden on farmers and has enabled them to recover from crop losses quickly.
According to a study conducted by the National Bank for Agriculture and Rural Development (NABARD), agricultural credit disbursement in India increased from INR 8.53 lakh crore in 2014-15 to INR 15.96 lakh crore in 2019-20, recording a growth of 87%. The study also found that credit flow has been instrumental in increasing agricultural productivity, and the benefits of credit flow have been most significant for small and marginal farmers.
Pradhan Mantri Fasal Bima Yojana (PMFBY) : The Pradhan Mantri Fasal Bima Yojana (PMFBY) was launched in 2016 to provide crop insurance to farmers in case of crop failure due to natural calamities. Under this scheme, farmers pay a nominal premium of 2% for kharif crops, 1.5% for rabi crops, and 5% for horticulture crops, while the rest of the premium is paid by the government. As of 2020-21, the scheme had covered over 5.75 crore farmers with a sum insured of over INR 2.35 lakh crore.
The PMFBY scheme has helped reduce the financial burden on farmers in case of crop failure due to natural calamities, thereby promoting agricultural development in India.
Pradhan Mantri Krishi Sinchai Yojana (PMKSY) :The Pradhan Mantri Krishi Sinchai Yojana (PMKSY) was launched in 2015 to promote water conservation and efficient use of water resources in agriculture. The scheme provides financial assistance to farmers for various activities such as micro-irrigation, water harvesting, and watershed development. As of March 2021, the scheme had covered over 19.53 lakh hectares with a total financial assistance of over INR 8,282 crore.
The PMKSY scheme has helped improve water efficiency in agriculture, resulting in increased agricultural productivity and income for farmers.
Rashtriya Krishi Vikas Yojana (RKVY) : The Rashtriya Krishi Vikas Yojana (RKVY) was launched in 2007 to promote agricultural development in India. The scheme provides financial assistance to farmers for various activities such as crop diversification, value addition, and marketing. As of March 2021, the scheme had covered over 15.25 lakh beneficiaries with a total financial assistance of over INR 44,089 crore.
The RKVY scheme has helped promote agricultural diversification, resulting in increased agricultural productivity and income for farmers.
The scheme provides credit guarantee coverage for loans up to INR 2 crore, and the interest rate is fixed at 3% per annum for a period of seven years. The AIF is implemented through Primary Agricultural Credit Societies (PACS), Farmers Producers Organizations (FPOs), Self Help Groups (SHGs), and other eligible entities.
The AIF has already started showing positive impact, as several projects have been approved for funding. As of January 2021, a total of 6,310 projects worth INR 9,410 crore have been approved under the scheme, and the projects are expected to benefit around 2 lakh farmers.
Overall, agricultural lending and financing in India have been crucial in supporting the growth and development of the agricultural sector, which forms the backbone of the Indian economy. The various schemes and initiatives have enabled farmers to access affordable credit, modern infrastructure facilities, and insurance coverage, thereby improving their livelihoods and reducing the risks associated with agriculture. It is essential to continue implementing such schemes and initiatives and provide adequate support to farmers to ensure sustainable agriculture and rural development in India.
Challenges Faced in Agricultural Lending and Financing
Despite the government’s efforts and the increase in the number of financial institutions offering agricultural loans, there are still several challenges that need to be addressed. These challenges include:
- Lack of awareness: Many farmers in India are not aware of the various financial products and services available to them. This lack of awareness often leads to them not availing the benefits of these services.
- Collateral requirements: Banks and other financial institutions require collateral for agricultural loans, which is a significant challenge for small and marginal farmers who do not have sufficient assets to provide as collateral.
- Inadequate credit history: Many small farmers do not have a credit history, making it difficult for financial institutions to assess their creditworthiness.
- High-interest rates: Agricultural loans often come with high-interest rates, making it challenging for small farmers to repay the loan.
Impact of Agricultural Lending and Financing in India
Despite the challenges, agricultural lending and financing initiatives in India have had a significant impact on the agriculture sector. Some of the notable impacts include:
- Increased access to credit: Farmers who were previously unable to access credit now have access to various financial products and services, enabling them to invest in their farms and improve their productivity.
- Improvement in infrastructure: Agricultural lending and financing initiatives have led to the development of rural infrastructure, including the construction of irrigation systems, rural roads, and warehouses, among others.
- Risk mitigation: Crop insurance schemes offered by financial institutions and the government have helped mitigate the risk associated with agricultural activities, reducing the financial burden on farmers.
- Employment generation: The agriculture sector in India is a significant source of employment. The increase in productivity resulting from agricultural lending and financing initiatives has led to increased employment opportunities in the sector.
Conclusion: Agricultural lending and financing have played a crucial role in increasing agricultural productivity, income levels of farmers, and reducing poverty in rural areas. The various schemes launched by the government, such as crop loans, KCC, agricultural term loans, and agricultural insurance, have made credit more accessible and affordable for farmers.
The increased credit flow has enabled farmers to adopt modern technologies, purchase high-quality inputs, and expand their farming operations, leading to increased crop yields, higher farm incomes, and the creation of job opportunities in rural areas.
However, challenges such as inadequate credit flow to small and marginal farmers and inadequate coverage of agricultural insurance schemes need to be addressed. The government and financial institutions need to work together to develop more inclusive and comprehensive policies and schemes to ensure that all farmers can access affordable credit and insurance coverage.
References:
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“Agricultural Lending in India: Status, Issues, and Future Agenda” by R. K. Yadav and Nidhi Yadav (https://www.researchgate.net/publication/309668747_Agricultural_Lending_in_India_Status_Issues_and_Future_Agenda)
- “Role of Credit in Agricultural Development in India” by Priya Uppal and B. S. Hansra (https://www.researchgate.net/publication/329113432_Role_of_Credit_in_Agricultural_Development_in_India)
- “Agricultural Credit in India: Trends, Issues and Challenges” by R. K. Yadav, S. S. Solanki and S. S. Thakur (https://www.researchgate.net/publication/320481903_Agricultural_Credit_in_India_Trends_Issues_and_Challenges)
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“Agricultural Credit in India: An Analysis of Regional Disparities” by Rakesh K. Mishra and Nidhi Yadav (https://www.researchgate.net/publication/309503834_Agricultural_Credit_in_India_An_Analysis_of_Regional_Disparities)
