The Hindu Business Line : Not by credit alone

THE CENTRE'S RELIEF package for farmers that includes rescheduling of loans and substantial enhancement of institutional credit for agriculture should go some way in ameliorating the distressed conditions of a large section of the farming community. The importance of the latest pro-farm initiative lies not only in the commitment to enhancing the total flow of institutional credit by about Rs 25,000 crore to Rs 1,05,000 crore this fiscal, but also in the Finance Minister's statement that the Government's goal is to enlarge the universe of new farmers borrowing from banks by about 50 lakhs. Commercial banks will be asked to bring to their fold at least 100 new farmers at each rural and semi-urban branch during the year.

It is absolutely essential that resource-poor farmers, for long left out of the institutional credit system, get all the support. In the past, several measures were initiated to augment the flow of institutional credit to the rural sector and enhance the efficiency of the credit distribution channel. But far from improving, the flow of credit has slowed in recent years. In their anxiety to ensure recovery, banks tend to target relatively risk-free irrigated areas and high net-worth individuals for providing priority sector farm loans. By contrast, rain-fed and drought-prone areas as also relatively poorer households have had to depend on informal sources of finance, and suffer all the hassles associated with it.

It is, therefore, heartening that the common minimum programme of the new Government recognises the need to not only double the flow of rural credit in the next three years, but also ensure the coverage of small and marginal farmers by expanding institutional lending. Banks will have to become a lot more sensitive to rural needs, as also improve their risk management capabilities by reworking their prudential norms of income recognition, asset classification and provisioning. Private sector banks, in particular, have the opportunity to come out with innovative products to fund agriculture, for instance contract farming. There is also need to strengthen micro-finance by encouraging self-help groups and improving the outreach of the Kisan Credit Card system.

All this will surely help, but may not be enough. No doubt, among the many important inputs for agriculture, credit is critical, but that alone is unlikely to resurrect the farm sector from its moribund state in many regions. The ability of the Indian farmer to respond to improved credit with higher production is limited by the many challenges he faces. Consolidation of fragmented landholding, strengthening of input delivery system, scientific water management, improved agronomic practices, creating rural infrastructure and ensuring flow of information are some important components that would go to make agriculture competitive. Policymakers will have to think through how funds are going to be generated to step up public investment in agriculture and how to attract private monies. Finally, no significant positive gains can be achieved without the full participation of State governments; after all, agriculture and agri-marketing are State subjects.

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