Reasons for credit needs by a farmer

As the farmer gets money at the end of cropping cycle, but in between the completion of this cropping cycle, farmer has many farm related as well as personal expenses. Likewise, farmer needs credit at different time intervals for various crop inputs viz. hybrid seeds, fertilizers, pesticides, irrigation etc) which occur during cropping season.
 
Due to these unavoidable expenses, a farmer needs credit and when his needs are not met, the crop productivity gets affected and the condition of a farmer goes bad. Many studies have shown that crop productivity of the small and marginal farmer can be enhanced by 35-50 percent, if right quality of farm inputs is applied at the right time. For this reason farmer requires a continuous line of credit.
 
Credit is not reaching farmers who really require it
 

As per the RBI report, small and marginal farmers are getting only 30-40 percent of the loan meant for the sector. In year 2016-17, only 42.2 percent of agricultural credit disbursed gone to small and marginal farmers. Bharat Ramaswami, professor at the Indian Statistical Institute and agricultural economy expert said ‘There are two ways of seeing this. One is that it is not equitable, where some farmers, the larger ones and the ones closer to urban areas, are over-represented in terms of access to credit. In so far as the priority sector lending mandated are concerned, the mandate is not to reach a particular type of farmer. So, the programme itself is not targeted.’

 

As per the RBI’s guidelines for agricultural sector that 18 percent of the Adjusted Net Bank Credit must be fulfilled and out of this 8 percent is target for small and marginal farmers. On one hand banking sector has overall met this target, but on other hand an inherent problem arising out of the lending cost to this sector. Ramaswami said ‘The priority sector lending mandate is in place because it is felt that banks would not otherwise lend as much to this sector. So there are some costs of lending to this sector, and if they are not given this mandate, because of this cost they would not lend as much to the agricultural sector as the government would like them to.’ According to him, Banks select only those areas for lending, where ending cost is lower, such that urban farmers and other affluent farmers i.e. medium and large farmers.

 
RBI data shows that out of total agricultural credit outstanding in year 2017, only 34.5 percent has gone to rural farmers.
 
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