Organization of agricultural credit in India

Agricultural credit is considered as one of the most basic inputs for conducting all agricultural development programs. After independence, the Government adopted the institutional credit approach through various agencies like co-operatives, commercial banks, regional rural banks etc. to provide adequate credit to farmers, at a cheaper rate of interest. Moreover, with growing modernization of agriculture during the post-green revolution period, the requirement of agricultural credit has increased further in recent years

The government has been raising credit target for the farm sector every year, With the aim of doubling farmers’ income by 2022. The agricultural credit flow has increased consistently over the years, exceeding the target set for each fiscal.

Credit is a critical input in achieving higher farm output. Institutional credit will also help delink farmers from non-institutional sources where they are compelled to borrow at usurious rates of interest.

Since Green revolution, the investment requirements for cultivation has continuously increased, as almost all inputs like seeds, pesticides, fertilizers, motor pump sets, tractors, pipe lines, etc., are to be purchased and several other services such as tractors, sprayers, rotors, harvesters etc., are to be hired from the market.

Types of agricultural credit

Considering the period and purpose of the credit requirement of the farmers of the country, agricultural credit in India can be classified into three major types:

  • Short term credit: The Indian farmers require credit to meet their short term needs viz., purchasing seeds, fertilizers, paying wages to hired workers etc. for a period of less than 15 months. Such loans are generally repaid after harvest. The Indian farmers require credit to meet their short term needs viz., purchasing seeds, fertilizers, paying wages to hired workers etc. for a period of less than 15 months. Such loans are generally repaid after harvest and are called short term credit. In fact, the proportion of such loans has been quite high.
  • Medium-term credit: This type of credit includes credit requirement of farmers for a medium period ranging between 15 months and 5 years and it is required for purchasing cattle, pumping sets, other agricultural implements etc. Medium-term credits are normally larger in size than short term credit.
  • Long term credit: Farmers also require finance for a long period of more than 5 years just for the purpose of buying additional land or for making any permanent improvement on land like the sinking of wells, reclamation of land, horticulture etc. Thus, the long term credit requires sufficient time for the repayment of such loan.

Sources Agricultural Credit:

  • Sources of agricultural credit can be broadly classified into institutional and non-institutional sources.
      • Non-Institutional sources include moneylenders, traders and commission agents, relatives and landlords, but
      • Institutional sources include co-operatives, commercial banks including the SBI Group, RBI and NABARD.
  • The major institutional credit agencies in India are Commercial Banks (CBs), Regional Rural Banks (RRBs) which are mainly sponsored by the Scheduled Commercial Banks and state governments. There are also the Cooperative Banks which are further divided into rural cooperatives and urban cooperatives.
  • Scheduled Commercial Banks are largest credit providers followed by Cooperatives and Regional Rural Banks. It is observed that after the nationalization of commercial banks of India in 1969, the commercial banks as a whole have increased consistently its share in institutional credit to agriculture sector.

Government steps for providing Agriculture Credit to Farmers:

  • Kisan Credit Card (1998-99):

The Kissan Credit Card (KCC) scheme was launched in 1998 with the aim of providing short-term formal credit to farmers. Owner cultivators, as well as tenant farmers, can avail loans to meet their agricultural needs under this scheme at attractive rates of interest. RBI monitors it for SCBs and NABARD monitors the scheme with respect to Cooperative Banks and RRBs. Now Cooperative sector are under RBI. Budget 2018-19 extended this provision to Animal Husbandry and Fisheries.

  • Agriculture Market Infrastructure Fund (AMIF) – NABARD:

For development and upgradation of rural agriculture markets. It was announced in 2018 Budget for developing and upgrading agricultural marketing infra in the 22,000 Gramin Agricultural Markets (GrAMs) and 585 APMCs. At present, GrAMs are being developed by MGNREGA Funds. Scheme is demand driven. It will be created with NABARD and will provide the state/ UT governments subsidized loans for their proposal for developing marketing infrastructure in 585 APMCs and 10,000 villages.

  • Interest subvention scheme:

The Interest Subvention Scheme is being implemented by NABARD and RBI.

The interest subvention scheme for farmers aims at providing short term credit to farmers at the subsidized interest rate.  The policy came into force with effect from Kharif 2006-07. The scheme is being implemented for the year 2018-19 and 2019-20.

  • NABARD Fund of Rupees 700 crore VCF for Rural Agriculture Startups:

The fund has been launched by Nabventures, a subsidiary of NABARD, and has a proposed corpus of Rs 500 crore with an option to retain over-subscription of Rs 200 crore, called as the greenshoe option (over allotment option).