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Agricultural Finance in India

A Study of Small, Marginal,


Dalit and Tribal Farmers

List of Contents
Acknowledgement
ii
iii
vi
List
vii

List
List
of

of
of
Appendix

Tables
Figures
Tables

Study Chapters
1. Introduction
2.
CapitalinFormation
in Agriculture and the State of Credit Flow: Rajasthan
Situation
Relative Context
3. Agricultural Growth and Flow of Credit 82
4.
Indebtedness
Demand for Credit among Farmers in Rajasthan: Insights
from
NSSOs 59thand
Round
5. Sample Districts: A Profile
6. Sources of Credit among Sample Farmers: Comparison of PACS and
KCC
7.Conclusions

vii

Chapter 1
Introduction
1.1. The Problem
This study examines the question of access to credit among marginal, small, tribal and dalit
farmers. In fact, the question of credit delivery to the agriculture sector is largely studied by a
number of scholars. Prime issues addressed by the available literature remain confined to the
significance of credit, sources of credit delivery, access, disparities, government policies and
so on. In this literature, there prevails a large gap as far as the question of credit supply to
the marginal, small, tribal and dalit farmers is concerned. This gap largely prevails
specifically in the case of tribal and dalit farmers. The situation worsens further when we
discuss this specific issue in the case of Rajasthan as no study has hitherto addressed the
issue of disparities in access to credit delivery in this state.
1.2. Context
In developing countries like India, the agriculture sector assumes significance for a
variety of reasons. It is still a source of livelihood for a majority of people in rural areas and
there is a need for ensuring sustainability in these livelihoods. Recent Population Census
(2011) reveals that there are 18.20 crore cultivators and agricultural workers. It is noteworthy
that the agriculture/ rural sector provide demand for industrial goods and in India
whenever agriculture sector has grown at the annual rate of 3-4 percent; other sectors have
shown healthy growth. In fact, the required growth of productivity in agriculture means that
more capital must be invested in it. Farmers need much more capital than they can afford
to save and small and marginal farmers with meagre savings require a higher input of
capital. Credit is a condition that enables a person to extend his control over his ownership
of resources. Indian agriculturist is not only capital starved, but faces vagaries of nature
too; irrigated agriculture is roughly 33 percent of total cropped area. Agriculture, thus is, a
high- risk area. It is also observed that Indian agricultures investments requirements
fluctuate as incremental output ratios have varied significantly. In fact, it is not only the
availability of credit but also the access to adequate institutional credit that matters, since
most of those who are engaged in agriculture belong to the marginal and small farmer
categories.

Agriculture sector credit flow has been influenced by fallout of implementation of


various accounting and statutory norms without taking into account the ground level realities,
which led to irreparable damage to the rural financial architecture in the post liberalization
era. The agriculture finance is being viewed as a risky proposition now. This has led to
piquant situation where the share of small and marginal farmers in total credit flow has
declined when share of this group of farmers in operational holdings over the period has
increased. Besides, dalit and tribal farmers are largely observing declining share in credit
flow. We encounter a situation when these farms have increased their contribution in
agricultural production thereby immensely contributing to food security and attaining food
self-sufficiency, the share in total credit has declined.
The main challenge faced by agricultural credit involves not only ensuring flow of
credit to small and marginal farmers and dalit and tribal farmers, but designing policies
and credit delivery systems that have relevance in the present context in terms of production
and demand for agricultural products. Such policies have to consider the need for agricultural
credit due to crop diversification. The present multi-agency approach is inadequate to tackle
the pressing need for finance of agricultural extension services too. We need to tackle the
issue of how to channel the resources of commercial banks in sustainable and viable manner
in order to fund the development of a wide range of allied activities. It is also felt that
tenancy laws also hinder flow of credit to tenant and sharecroppers despite guidelines issued
by Reserve Bank of India. The specific needs of the agricultural sector to financial services
demand a broader systemic approach. Need is to understand the extent of availability and
distribution of productive resources, along with their distribution, legal and social structures
governing their use, cropping patterns, current and emerging technologies and dynamics of
rural markets and so on to gauge the credit requirements. This would improve the flow of
credit to agriculture, especially small farmers. A critical determinant for agricultural credit is
the commercialization of subsistence farmers. Development of efficient marketing system
would result in the commercialization of subsistence farmers by providing outlets and
incentives for increased production.
Critical issues of rural agricultural infrastructure and institutions need to be
addressed as credit can only be the facilitator. Investments are required in irrigation,

rural roads and other infrastructure. One argument is that farmers need to be provided
incentives to adopt market based solutions for input procurement and marketing of output
through autonomous cooperatives and other forms of organization. Does integration of crop
and investment credit and scales of finance used reviewed and readjusted in line with the
requirements of modern, market-oriented capital intensive agriculture using newer
technologies and superior inputs? Is rising cost of production is factored in? The new
technologies and production cycles are high cost and risky proposition for such farmers and
market volatility harms them the most and policies and state role need to take cognisance of
these factors. Such farmers have no protection against natural calamities and are most
vulnerable. These farmers have limited ability to manage interest rate risk. Most of these
farmers lack the absorptive capacity both in terms of cost and the size of loans and advances,
which are of cost effective size to be handled by the banks. It has to be recognized that
business of farming is not just an issue of individual livelihood but is also critically related
to national food security. Therefore farmers must have access to credit.
In Indian agriculture, even small and marginal farmers and dalit and tribal farmers
whether owning land or not, are risk taking entrepreneurs contributing to economic growth.
Farmer is an important player in the financial, labour, inputs and commodity markets, who
because of the size of transactions in the market place does get marginalized. Livelihood
diversification can help in greater credit absorption at lower end of farming community.
Besides, increased public investment in agricultural infrastructure, research and extension
services is required. Need is also felt for developing post-harvest technologies and marketing
facilities that can reduce frequent risk and losses faced by farmers.
1.3. Available Literature on Agricultural Finance in India: A Brief Review Agricultural
finance has always played a pivotal role in the development of the agriculture
sector. Earlier it has been the non-institutional sources of agricultural finance that has
dominated the scene but with independence, the government took a special attention for
the provision of institutional credit to the agriculture sector. There appeared numerous
schemes for the provision of speedier and adequate credit to the farming community.
Similarly, the banks were directed to provide easy loan to the

farmers by initiating various innovative schemes. The progress has been remarkable and
the farmers are provided finance through various institutional sources. In light of the fact
that the demand for credit by the farming community is so enormous that the institutional
system remains insufficient to provide adequate credit, there emerged parallel noninstitutional systems of agricultural finance. Given such structure of the agricultural finance
markets in India, there emerged a plethora of literature that have discussed various tenets of
agricultural finance in their entirety. A brief review of available literature is discussed below.
1.3.1. Significance of Credit as an Agricultural Input
Recent growth of Indian economy has been primarily service-led. The service sector has
completely replaced agriculture, which has been traditionally the largest contributor to Indias
GDP. However, the fact that agriculture has a small share of 14 percent in GDP today
comparing to a share of more than 50 percent in total GDP, does not belittle its importance for
the Indian economy. This is because first, agriculture remains the largest employer having a
share of around 60 percent; second, it holds the key to creation of demand in other sectors and
remains by far an important indirect contributor to Indias GDP growth.
Commercial banks have played an important role in financing the needs of agricultural
sector. With the aim of facilitating timely and adequate credit flow to agriculture, the sector
has been targeted as a part of the priority sector lending programme introduced after
nationalisation of banks in 1969. Since then, banks have become gradually an important
source of agricultural credit, although the growth in their share has not been monotonic
during 1980s. In the first half of 2000s, there has been a steep rise in the share of
commercial banks in total agricultural credit. Starting
1990s, the share of short-term agricultural credit in total agricultural credit has been going up.
Newer credit delivery systems in the form of Kisan Credit Card (KCC) were introduced to
provide easy access to credit.
Banks like NABARD has grown and evolved over the last three decades from a unidimensional apex financing agency into a multi-dimensional institution for shaping and
implementing the countrys overall rural credit policy. In the first two decades after

independence, the conduit for institutional credit to agriculture was the cooperative sector.
Although

sound

in

concept,

the

cooperative

sector

failed

to

live

up

to

expectations. With the nationalisation of commercial banks, the decade of 1970 marked the
entry of commercial banks into agricultural credit. Over the last 40 years, there has been a
striking increase in the credit intensity of agriculture as measured by the ratio of agricultural
credit to agricultural GDP. The credit intensity increased from 12 percent in the early 1970s to
67 percent by 2010-11 (Subbarao, 2012).

Capital formation in agriculture has been another aspect that has attracted the attention
of researchers. A study by Karmakar (1998) has examined the growth trends in capital
formation in agriculture in both public and private sectors. It finds the declining trend
in both the public and private sources of capital formation. In fact, as per this study, the share
of gross capital formation had declined from 15 percent in 1980-81 to 8 percent in 1990-91.
It finds that the real gross capital formation in agriculture sector showed negative growth
rates of 2 percent per annum during the sixth plan and
1.4 percent per annum during the seventh Plan. Correspondingly, the share of
agriculture sector as percentage of total investment in economy had also declined from
18.2 percent in fifth plan to 15.1 percent in the sixth plan and further to 11.9 percent during
the seventh Plan.

The impact of agricultural credit policy and credit disbursements on crop productivity
is also examined by numerous studies. Kannan (2011), for example, by focusing on the state
of Karnataka finds that the disbursement of credit through institutional sources had a large
impact on improving agricultural productivity. However, it points at its inadequacy and
thereby urges for widening its coverage both in terms of the amount of credit and the
coverage of more number of marginal and small farmers. Similarly, Das et al. (2009) examine
the role of direct and indirect agricultural credit on agricultural production by taking care of
regional disparities in agriculture, credit disbursement and agricultural production in an
economic framework using Dynamic Panel Data Analysis. It finds that the direct agriculture
credit has a positive and statistically significant impact on agricultural output and its effect is
immediate.

Another study by Satyasai (2012) has empirically examined the relative access of
different categories of farm households to formal credit and its impact on fertilizer use. This
study finds that access to credit has had a positive impact on the usage of fertiliser among the
farmers though a large impact is experience among medium and large farmers than the
marginal and small farmers. It finds the elasticity of fertilizer use with respect to credit
between 0.20 and 0.24 for marginal and small farms. The same has been between 0.52 and
0.54 for medium and large farms.
1.3.2. Status and Performance of Agricultural Credit
There have prevailed various inter-state differences in the access to institutional credit as well
as the loan amount obtained by farm households even for the same size class of landholding.
Owing to which, an analysis of status and performance of agricultural credit has been
the major concern of the available literature on agricultural finance. Such literature
facilitated policy makers in taking review of progress already made and thereby it helped
them in taking the appropriate corrective action.
There appeared a large number of studies that have examined this aspect. Sahu (2008),
for example, analyses the trends in the supply of agricultural credit by institutional agencies in
fourteen major Indian states. It observes that the growth rate of agricultural credit was higher
during per-reform period compared to the reform period in most of the states. It also observes
that the growth rate of agricultural credit was higher during pre-reform period compared to
the reform period in most of the states. It notes the unevenness in the growth rate of
agricultural credit during the sub periods as well as across the states.
Similarly, Mohan (2006) examining the performance of the flow of institutional credit
finds that despite the increase in the overall flow of institutional credit over the years, there
has taken place several gaps in the system like inadequate provision of credit to small
and marginal farmers, paucity of medium and long-term lending and limited deposit
mobilisation and heavy dependence on borrowed funds by major agricultural credit
purveyors. All these have major implications for agricultural development and the well being
of the farming community. It urges for taking serious efforts to address and rectify these
issues.

1.3.3. Sources of Credit


The credit markets do not operate in isolation; rather they generate various kinds of horizontal
and vertical linkages. Chaudhari et al. (2002) work out the dynamics of such linkages by
taking the case of backward agriculture with a theoretical analysis. Similarly, the issue
of interlocking of land, labour and credit markets has gained the attention of researchers.
In fact, the institutional credit has been conceived to play a pivotal role in the
agricultural development of India. A large number of institutional agencies are involved in the
disbursement of credit to agriculture. However, the persistence of moneylenders in the rural
credit market is still a major concern. Kumar et al. (2010) on the basis of secondary data
compiled from several sources, conclude that the institutional credit to agriculture in real
terms has increased tremendously during the past four decades. The structure of sources of
credit has witnessed a clear shift and commercial banks have emerged as the major source of
such credit to agriculture in recent years. It notes that several initiatives have been taken to
strengthen the institutional mechanism of rural credit system. The main objective of these
initiatives has been to improve farmers access to institutional credit. The major milestones
in improving the rural credit are, acceptance of Rural Credit Survey Committee Report
(1954), nationalisation of major commercial banks (1969 & 1980), establishment of RRBs
(1975), establishment of National Bank for Agriculture and Rural Development (NABARD)
(1982) and the financial sector reforms (1991 onwards), Special agriculture credit plan (199495), launching of Kisan Credit Cards (KCCs) (1998-99), doubling Agricultural Credit
Plan with three years (2004) and Agriculture debt waiver and Debt Relief Scheme (2008).
These initiatives had a positive impact on the flow of agricultural credit. However, the
persistence of money lenders in the rural credit market is still a major concern.
The government is trying its best to expand the reach of the institutional credit to
the farmers. Recently, it has initiated a new scheme, called the Kisan Credit Card (KCC)
Scheme. This scheme has been successful to some extent. There appeared various studies that
have made an assessment of the performance of this scheme. A study by Kumar et al. (2011),
for example, have focused on three aspects related to this scheme; first, it examined the statewise variation in the disbursement of KCCs; second, it estimated the magnitude of regional
disparities in the spread of KCCs and the third, it

made an attempt to look into the factors that influence the availing of KCC scheme by the
farmers.
In addition to the commercial banks, a large number of studies have also focused their
attention on the performance of co-operative societies. Kumar and Singh (2007), for
example, by focusing on the case of Himachal Pradesh have examined the impact of cooperative credit on 1) agricultural inputs; 2) land improvement; 3) agricultural production and
4) marketing practices. This study finds that the access to co-operative credit has generated a
positive impact on the usage of agricultural inputs. The farmers have invested in land
improvement. All this led to an improvement in agricultural production. Similarly, there has
been some improvement in the marketing practices of the sample farmers though the study
has noticed variation across farm size class in terms of all the four areas of impact.
1.3.4. Access to Credit
Given this structure of the Indian agricultural finance system, a number of studies have
focused their attention on the question of access to credit by way of addressing various issues
related with credit gap, implicit disparities in access to credit, etc. Focusing on the Bikaner
district of Rajasthan, Singh and Kumar (2003) have examined the aspect of institutional credit
gap in agriculture. This study finds the presence of large gap in the provision of institutional
credit to the agricultural sector. In fact, this gap has dampened the growth of agriculture.
Khan et al. (2007) focuses on examining the nature and extent of inter-state disparities
in per hectare flow of short-term institutional credit to agriculture sector. Covering seventeen
agriculturally important states (having about 96 percent of agricultural land), it finds the
incidence of sharp inter-regional disparities in the per hectare flow of institutional credit. It
finds that there prevailed wide disparities across states in this respect during the preliberalisation period of 1980-81 to 1990-91 but thereafter, there has taken place a decline in
the incidence of disparity during the post- liberalisation period. However, the study points out
that the coverage of institutional credit has remained very low. It finds that it has been below
20 percent of the cost of cultivation.

Haque and Verma (1988) finds that there has been a remarkable increase in the
percentage share of institutional credit to total rural credit over time in almost all the regions
of the country, except Assam. It finds that the agricultural moneylenders has made a
significant contribution to the supply of total credit in many regions including Meghalaya
(21.2 percent), Bihar(18.8 percent), Andhra Pradesh (14.4 percent) and Rajasthan (9.6
percent). It finds that the co-operative credit (year 1984-85) had a per hectare availability
ranging from Rs. 24 in Bihar to Rs 1490 in Kerala. The states of Bihar, Jammu &
Kashmir, Madhya Pradesh, Orissa, Rajasthan, Uttar Pradesh, West Bengal and Karnataka
had relatively lower amount of cooperative credit per hectare available than national average
(Rs. 165). The amount of loan issued per borrower was the highest in Gujarat (Rs. 2,551)
and the lowest in Bihar (Rs. 231). Same pattern of loans were observed with regards to
commercial banks. Considering the country as a whole, however, per hectare cooperative
credit was found to be comparatively high in the small size land holdings of below 2 hectares.
The medium and large farms had relatively more credit per borrower. The results of the study
have far reaching policy implications as the private agencies including the agricultural and
professional moneylenders were found to dominate in the agricultural credit market in many
regions where the liberation of farmers from the poverty and debt traps has a very remote
possibility.
Dadibhavi (1988) observes that over the years, the co-operative credit institutions as
well as the commercial banks and Regional Rural Banks (RRBs) have registered a
commendable progress. In relation to short term credit, the commercial banks seem to have
fared better in providing credit to small borrowers. The share of co- operative short-term
credit going to small borrowers having holdings up to 5 acres each was 41 percent as
compared to 62 percent of commercial banks. The study observes increasing concentration of
institutional credit to agriculture in few regions/states between 1972 and 1985, despite the
goals set before the banking system to provide a more even distribution of bank credit. It
suggests that the commercial banks can go to the areas where co-operatives are strong,
provided they play a complementary role in the distribution of different components of total
credit.

1.3.5. Question of Indebtedness


Indebtedness among Indian famers has long been recognised by the observers of rural scene
in India. The Deccan Riots Commission (1875) reported that one-third of occupants of the
government land were under debt. The Famine Commission of 1880 reported that one-third
of the land holders in the country were in deep debt and another one-third were also in
debt but in a position to redeem it. The Famine commission of 1901 estimated that more than
80 percent of the cultivators were under debt. The great depression (1929-33) considerably
increased the burden of debt of the farmers.
The problem of indebtedness of the farmers continues in the post-independence
period. The proportion of indebted cultivators came down to 46.1 percent in 1971 and further
declined to 22.3 percent in 1981. In the subsequent period, the proportion of indebted
cultivators increased to 25.9 percent in 1991 and has increased sharply to
57.2 percent in 2003. If farmers engaged in allied agricultural activities are added to the
cultivators then the proportion of indebted farmers at all-India level is estimated at 48.6
percent (NSSO, 59th round). Thus the proportion of indebted farmers has been higher than
that was estimated in1971. Deceleration in agricultural growth in the 1990s is regarded as one
of the most important factors responsible for increasing indebtedness.
Focusing on the state of Uttar Pradesh, Kareemulla (2008) points out that given the
size and economic contribution of Uttar Pradesh, there is relatively little access to institutional
credit in this state. There is lower banking network in the state. Similarly, there prevails large
indebtedness among the farming community. In fact, crop failure due to vagaries of
weather and the diversion of agricultural loan for non-productive uses have been the major
factors influencing the indebtedness of farmers in Uttar Pradesh.
1.3.6. Emerging Insights and Scope for Further Research
Given the plethora of research on agricultural finance, it is worth emphasising that the
available literature has addressed a variety of issues ranging from the contribution of
agricultural finance to agricultural growth and productivity to the sources and implicit
variations in the access to agricultural finance. Though the available literature has

addressed partly the plight of marginal and small farmers, there has prevailed a dearth of
literature that has focused exclusively on this segment of the farming community and the
research gap in this respect widens further when we focus on the state of Rajasthan. Here,
there exists no study that has examined hitherto the plight of this segment of the farming
community. Similarly, not much research exists on the question of access to credit among
dalit and tribal farmers.

1.5. Objective of the Study


In the above background, the present study is an attempt to
1. To have a detailed review of available literature on agriculture finance in Indian
context in order to arrive at pertinent issues and concerns.
2. To analyse the flow of credit to agriculture sector at all India level and Rajasthan
state in particular since 2000 and the changes in policies.
3. To analyse issues related to and trend in agriculture sector capital formation.
4. To analyse the demand for credit for small, marginal, dalit and tribal farmers in

1.6. Analytical Approach


1.6.1. Secondary Level Analysis
Secondary level analysis provides a base to the study. This analysis is carried out primarily
with the help of secondary data provided by Reserve Bank of India (RBI), National Bank for
Agricultural and Rural Development (NABARD) and State level Bankers Committee. In
addition, the study has also utilised various data sources provided by agricultural ministry
both at the central and the state level. Moreover, the study has also culled out the relevant
information from other secondary data sources such as National Accounts Statistics, Database
of the Centre for Monitoring Indian Economy (CMIE), state-level Statistical Abstracts etc.
1.6.2. Primary- level Analysis
The primary level exploration aimed at tracing the situation of credit supply at the grass root
level. Detailed information about farmers access to Primary Agricultural Cooperative
Societies (PACS) and the Kisan Credit Card (KCC) is collected. The farmers are asked about
their membership status, nature and magnitude of credit taken along with their experience of
problems. An inquiry is also made about their usage of PACS and KCC credit for
agricultural or consumption purposes.
References
Chaudhari, S.; Gupta, N. and Kumar, D.J. (2002) Horizontal and Vertical Linkages
between Formal and Informal Credit Markets in Backward Agriculture: A Theoretical
Analysis, Indian Journal of Social Development, Vol. 2, No. 1, pp. 140.
Dadibhavi, R. V. (1988) Dimensions of Regional Disparities in Institutional Credit to
Agriculture, Indian Journal of Agricultural Economics ,Vol. 43, No. 3, pp. 374.
Das, A.; Senapati, M. and John, J. (2009) Impact of Agricultural Credit on Agriculture
Production: An Empirical Analysis in India, Reserve Bank of India Occasional
Papers, Vol. 30, No. 2, pp. 75-107, Monsoon.
Haque, T. and Verma, S. (1988) Regional and Class Disparities in the Flow of Agricultural
Credit in India, Indian Journal of Agricultural Economics, Vol. 43, No. 3, pp. 356380, July-September.
Kannan, E. (2011) Relationship between Agricultural Credit Policy, Credit
Disbursements and Crop Productivity: A Study in Karnataka, Indian Journal of
Agricultural Economics, Vol. 66, No. 3, pp. 444-456.
Kareemulla, K. (2008) Bank Credit for Agriculture versus Farm Indebtedness in Uttar
Pradesh, Agricultural Situation in India, January, pp. 471-477.
Karmakar, K. G. (1998) Capital Formation in Agriculture and Role of Institutional
Credit, Journal of Rural Development, Vol. 17, No. 1, pp. 37-52.
Khan, A.R.; Tewari, S.K. and Shukla, A.N. (2007) Effect of Liberalization on Institutional
Agricultural Credit Flow and its Relationship with Average Cost of Cultivation in
Indian Agriculture, Agricultural Economics Research Review, Vol. 20, JulyDecember, pp. 227-234.
Kumar, A.; Singh, K.M. and Sinha, S. (2010) Institutional Credit to Agricultural Sector in

India: Status, Performance and Determinants, Agricultural Economics Research


Review, Vol. 23, No. 2.
Kumar, A.; Yadav, C.; Jee, S.; Kumar, S. and Chauhan, S. (2011) Financial Innovation in
Indian Agricultural Credit Market: Progress and Performance of Kisan Credit Card,
Indian Journal of Agricultural Economics, Vol. 66, No. 3, pp. 418-428.
Kumar, S. and Singh, R. (2007) Impact of Cooperative Credit on the Agriculture Sector of
Himachal Pradesh: A Study of the Mid-Hill Zone, Social Change, Vol. 37, No. 2, pp.
53-68, June.
Mohan, R. (2006) Agriculture Credit in India: Status, Issues and Future Agenda,
Economic and Political Weekly, 41(11): 1013.
Sahu, G.B. (2008) Supply Analysis of Institutional Credit to Agriculture For Major States in
India, Asian Economic Review, Vol. 50, No. 2, pp. 325-340, August.
Satyasai, K.J.S. (2012) Access to Rural Credit and Input Use: An Empirical Study,
Agricultural Economics Research Review, Vol. 25, Conference Number, pp. 461-471.
Singh, D. P. and Kumar, Anil (2003) Institutional Credit Gap in Agriculture: A Case Study
of Bikaner District, Agricultural Economics Research Review, Vol. 16, No. 2.
Subbarao, D. (2012) Agricultural Credit: Accomplishment And Challenges,
Reserve
Bank Of India Limited, Vol. 66, No. 8, pp. 1413

Chapter 2
Capital Formation in Agriculture and the State of Credit Flow
Rajasthan Situation in Relative Context

2.1. Introduction
Growth of the agriculture sector is significantly dependent on the aspect of capital formation.
But, the Indian agriculture has remained largely plagued with shrinking capital formation in
recent times. The flow of credit plays a large role in the capital formation in the agriculture
sector. So, this chapter focuses on this aspect. It provides a detailed analysis of the capital
formation in agriculture along with having a deeper inquiry into the state of credit flow. There
are seven sections in this chapter. The first being the introductory introduces the subjectmatter of the chapter. The second section discusses recent trends in gross capital formation in
agriculture. The third section examines the role of the banking sector in the provision of
credit to the agriculture sector. The fourth section provides a deeper analysis of credit delivery
by the banking sector. The fifth section analyses the major innovations in the provision
of credit delivery to the agriculture sector. The sixth section focuses on the aspect of
credit delivery with specific focus on the small farmers and the final section concludes the
emerging observations.
2.2. Recent Trends in Gross Capital Formation in Agriculture
Indian agriculture is plagued with shrinking capital formation during recent times. Lack of
investment has emerged as a major constraint in increasing GDP from agriculture. Since the
mid-1980s, the share of gross capital formation in agricultures total GCF started declining.
In 1980-81, it was 16.1 percent and in 1995-96 it declined to 6.3 percent. However, it rises
thereafter for a brief period and stood at 17.6 percent in
2001-02. The share of agriculture and allied sectors in gross capital formation has been
declining especially since 1999-00 from 10.2 percent to 6.5 percent in 2007-08 (table
2.1), though the share of public sector has been 7.5 percent or more. The share of
private sector fell from 11.9 percent to 6.1 percent during the same period. Private sector,
thus, has not been able to compensate adequately for the decline in public sector investment.

Table 2.1: Gross Capital Formation (1999-00 prices)


Years

GCF in
Share of agriculture sector in
total GCF
Agriculture
Rs.crore
Public
Private
Total
1999-00
43473
6.0
11.9
10.2
2000-01
39027
5.8
11.3
9.7
2001-02
48215
6.7
13.7
11.7
2002-03
46823
6.5
11.5
10.3
2003-04
44833
7.4
9.2
8.8
2004-05
49198
7.8
7.7
7.7
2005-06
56459
7.9
7.2
7.4
2006-07
62663
8.1
6.9
7.2
2007-08
67864
7.6
6.4
6.7
Source: Agricultural Statistics at a Glance, various issues.

Investment in agriculture as
percent of GDP
Public
Private
Total

0.4
0.4
0.5
0.6
0.6
0.6

2.1
1.8
1.7
1.8
1.7
1.7

2.5
2.2
2.2
2.3
2.3
2.3

The ratio of GCF in agriculture to total GDP has been in the recent times hovering
around 2.2 percent, thereby indicating the stagnancy in agriculture sector, though the ratio of
GCF in agriculture to agriculture GDP has improved; Rs.43473 crore in 1999-00 to Rs.67864
crore in 2007-08; observing an annual growth rate of 6.13 percent. There is no-doubt that
term loan component of bank credit has important bearing on capital formation in agriculture.
Over the decades, the share of term loan in the total credit flow has averaged 40 percent. In
1980-81, it constituted 40 percent of total credit flow and marginally went up to 41 percent in
1991-92. In 1996-97, it reduced to 36 percent to remain at 37 percent in next two years. It
appears that the base of the doubling of agriculture (2004-05) credit programme led to
improvement in share of term loan to 40 percent in 2006-07. Doubling period apparently had
a positive impact in improving the ratio of GCF in agriculture-to-agriculture GDP. In 200708, drastic reduction took place- ratio stood at 29 percent.
Table 2.2: Gross Capital Formation in Agriculture & Allied Sectors (Rs. crore at 1999-00
prices)
Year

Agri. &
allied sector
GDP

GCF in Agriculture & Allied Sectors


Public Sector

Private Sector

Total

Share in Total
GCF in Agriculture
Public
Private

1999-00
446515
8668
41483
50151
17.28
82.72
2000-01
445403
8085
37395
45480
17.78
82.22
2001-02
473248
9712
47266
56978
17.05
82.95
2002-03
438966
8734
46934
55668
15.69
84.31
2003-04
482677
10805
42737
53542
20.18
79.82
2004-05
482910
13019
44830
57849
22.51
77.49
2005-06
511114
15947
50118
66065
24.14
75.86
2006-07
531315
18755
54530
73285
25.59
74.41
2007-08
557122
22107
57221
79328
27.87
72.13
2008-09
566045
24197
61367
85564
28.28
71.72
CGR %
2.91
13.96
4.63
6.60
Source: GoI, Mid- Term Appraisal of the Eleventh Plan, Planning Commission, New Delhi.

% of GCF in
agriculture to
agriculture GDP

11.23
10.21
12.04
12.68
11.09
11.98
12.93
13.79
14.24
15.12

The agriculture and allied sector GDP during 1999-00 and 2008-09 (at 1999-00 prices)
has grown at a rate of 2.91 percent while public sector GCF in agriculture & allied
sectors has observed a significant growth rate of 13.96 percent, but private sector GCF in this
sector has lagged behind; almost one third growth rate (4.63 percent) (table
2.2). Total GCF in agriculture and allied sectors has grown annually at a rate of 6.6
percent during this period. However, share of private sector in total GCF in agriculture and
allied sector has come down from 82.72 percent in 1999-00 to 71.72 percent in
2008-09. It had peaked at 84.31 percent in 2001-02 but continuously declined since then.
On the hand, the share of public sector improved after 2003-04 to touch 28.28 percent in
2008-09. The gap between public and private sector GCF in agriculture & allied sectors
reduced from 4.79 in 1999-00 to 2.54 in 2008-09. It is also observed that GCF in agriculture
as percentage of agriculture GDP also improved since 1999-00 from
11.23 percent to 15.12 percent in 2008-09. These are positive changes observed during the
present decade.
It may be pointed out here that though private investment in agriculture has been
much higher than the public investment, it has been mainly concentrated on ground
water exploitation i.e., deepening of wells and installing more powerful pumps (submersible)
and mechanization. These investments do not enhance production capacity. Mechanization
replaces human and animal labour; their contribution to increasing productive capacity is
very limited. Besides the other factors, the deceleration in input use growth has also
contributed towards deceleration in yield growth though the potential for yield growth with
dissemination and application of known technologies is not yet exhausted.
Table 2.3: Growth in Loans and Agricultural Production
Period
1980-81 to 1990-91
1990-91 to 2003-04
2004-05 to 2006-07
Growth in Agricultural
Production
1980-81 to 1990-91
1990-91 to 2003-04
2004-05 to 2006-07

Crop loan
11.31
18.61
34.92

Term loan
11.72
16.89
35.89

Total
11.48
17.93
35.3

Food grains

Non Food grains

All crops

2.85
1.16
3.08

3.77
1.2
12.83

3.19
1.58
9.07

Source: Nirupam Mehrotra (2010), Emerging Patterns in Share of Small Farms in Production and
Credit: Implications for Policy Formulation paper in 12th Annual conference on Money and
Finance in the Indian Economy, IGIDR, Mumbai, March 11-12.

Table 2.3 shows that crop loans during eighties observed an annual growth of
11.31 percent, which increased to 18.61 percent during 1990-91 and 2003-04 and almost
doubled during 2004-05 and 2006-07. On the other hand, term loan grew at an average annual
rate of 11.72 percent and improved during 1990-91 and 2003-04 and further jumped to 35.89
percent during 2004-05 and 2006-07. The overall credit grew at 11.48 percent, 17.93 percent
and 35.30 percent respectively during the three periods under study. The food grain growth
during the three periods has been low at 2.85 percent, 1.16 percent and 3.08 percent
respectively. On the other hand, growth of non- food grains has been higher in all the periods.
For all crops, annual growth of 3.19 percent was observed during the eighties that declined to
1.58 percent during 1990-91 and 2003-04 to rise again to 9.07 percent during 2004-05 and
2006-07. Thus, increasingly higher doses of credit both crop and term loan are required to
enhance and get incremental increases in agricultural production.

2.3. Banking Experience


India has long experience of using development banks and cooperative institutions to deliver
agriculture credit to farmers. Cooperative credit for crop production is being administered
through primary cooperative societies, which have farmers as members. Credit, as one of the
critical non-land inputs, has two dimensions in the context of its contribution to the
augmentation of agricultural growth. These are availability of credit (quantum) and the
distribution of credit. In this section, we look at sources of agriculture credit.
Table 2.4: Relative Shares of Borrowing of Cultivator Households by Source (%)
Sources of Credit
Non-Institutional
Of which
moneylender
Institutional
Of which

Cooperatives
Commercial Banks
Unspecified
Total

1951
92.7

1961
81.3

1971
68.3

1981
36.8

1991
30.6

2002
38.9

69.7

49.3

36.1

16.1

17.5

26.8

7.3

18.7

31.7

63.2

66.3

61.1

3.3
0.9

2.6
0.6

22.0
2.4

29.8
28.8

23.6
35.3
3.1

30.2
26.3

100

100

100

100

100

100

Source: All India Debt Investment Survey and NSSO.

Table 2.4 shows that share of institutional credit, which was around 7 percent in
1951, increased manifold to over 66 percent in 1991, though declined to 61.1 percent in
2002. This reflects concomitantly a remarkable decline in the share of non-institutional credit
from around 93 percent to about 31 percent during the same period. However, the NSSO
Survey reveals that the share of non-institutional credit has taken a reverse swing, which is a
cause of concern. 1 The increase in household indebtedness was largely due to consumption
and similar other expenditures. It is, therefore, possible that the increase in indebtedness of
cultivator households to non-institutional sources was also partly due to consumption
expenditures, which could not be easily financed from institutional sources. This resulted in
share of non-institutional sources in the indebtedness of cultivator households to increase
between 1991 and 2002. This also reflects negative impact of the post-1991 policies.
2.3.1. Priority Sector Lending
The financial sector reforms have observed changes in priority sector lending across states.
Over the years the stipulation for lending to the priority sector has been retained though its
scope and definition has been fine-tuned by including new items. Based on the
recommendations of the Working Group set up by the RBI 2, the priority sector norms
were revised in April 2007. As per the revised norms, the sectors of the society/ economy that
impact large segments of the population, the weaker sections and the sectors which are
employment-intensive such as agriculture and micro and small enterprises, have been retained
as priority sector in the revised guidelines, which came into effect from April 30, 2007.
Agriculture, small enterprise, micro credit, retail trade, education loans and housing loan up to
Rs.20 lakh are the broad categories included in the priority sector. 3 However, under the
revised norms effective since April 30, 2007, priority sector lending proportion is calculated
as a percentage of adjusted net bank credit (ANBC) or credit equivalent amount of offbalance sheet exposure (OBE),
whichever is higher, instead of net bank credit (NBC). ANBC includes NBC plus

Ministry of Agriculture (GoI) set up a task force to look into issues of private moneylenders on October 6,
2009. It was also to look into the issue of large number of farmers, who had taken loans from private
moneylenders, not being covered under the loan waiver scheme [Ministry of Agriculture, 2010, Report of the
Task Force on Credit Related Issues of Farmers (Chairman: Umesh Chander Sarangi) June].
2 RBI (1966), All India Rural Credit Review Committee (Chairman: B.
Venkatappaiah).
3 RBI, Report on Currency and Finance 2006-08, Volume II, The Banking Sector in India: Emerging
Issues and Challenges,
Mumbai.
1

investments made by banks in non-SLR bonds held in HTM category 4. Narasimham


committee had recommended a reduction in priority sector lending, but political compulsions
did not allow the government to reduce the lending from existing 40 percent and that of
agriculture of 18 percent. Under the priority sector lending, direct institutional credit to
agriculture sector includes loans sanctioned for small and marginal farmers for purchase
of land for agricultural purposes. Distressed farmers indebted to non-institutional lenders can
obtain loans against appropriate collateral and group security. As per the new guidelines,
individual farmer can avail of loans up to Rs.10 lakh against pledge/hypothecation of
agricultural produce (including warehouse receipts) for a period not exceeding 12 months,
irrespective of whether the farmers were given crop loans for raising the produce or not.
This policy is exclusionary as small and marginal farmers get excluded. They are not in a
position to pledge produce.
Table 2.5: Share of States in Priority Sector Lending (%)
States
Andhra Pradesh
Assam
Bihar
Gujarat
Haryana
Himachal Pradesh
Jammu & Kashmir
Karnataka
Kerala
Madhya Pradesh
Maharashtra
Manipur
Meghalaya
Nagaland
Orissa
Punjab
Rajasthan
Tamil Nadu
Tripura
Uttar Pradesh
West Bengal
Chandigarh
Delhi
Pondicherry
All India

1990
47.5
50.5
63.7
39.3
66.7
60.8
54.1
47.0
47.9
52.7
24.0
68.5
64.0
64.2
54.6
61.4
58.6
44.6
66.3
54.1
29.6
36.9
20.0
41.8
40.4

1995
40.1
56.5
58.8
36.6
67.2
55.1
27.4
41.1
43.6
47.2
19.5
73.7
45.7
71.4
54.5
49.8
48.7
35.8
67.9
59.1
27.9
11.3
12.8
36.9
36.6

2000
44.3
47.4
53.7
34.6
62.1
57.6
61.7
43.5
45.9
49.7
24.1
68.3
44.5
61.7
56.1
53.5
53.1
36.1
65.2
69.3
31.0
27.8
14.9
37.3
35.4

2003
46.9
44.7
64.2
33.9
61.2
55.7
45.2
49.8
47.7
53.3
25.8
55.0
20.2
59.1
51.1
53.5
54.0
39.5
56.8
61.9
31.7
17.0
18.5
32.6
37.1

Source: Various issues of Economic Surveys.

RBI, Report on Trend and Progress of Banking in India, 2008-09.

2009
43.6
45.8
68.8
36.7
54.8
56.8
55.8
40.8
68.7
69.1
17.2
54.8
39.8
38.5
49.5
49.9
50.0
40.2
56.9
61.0
33.6
32.3
16.8
48.2
34.4

Table 2.5 shows the share of states in priority sector lending. It shows that in
1990 priority sector lending at all India level stood at 40.4 percent, which declined to
34.4 percent in 2009. At the state level, in 1990, Manipur recorded the highest priority sector
lending of 68.5 percent and Maharashtra recorded the lowest priority sector lending

at

(excluding Delhi) 24.0 percent. Gujarat, Maharashtra, West Bengal, Chandigarh and
Delhi did not achieve 40.0 percent target of priority sector lending in
1990. In 1995, Gujarat, J&K, Maharashtra, Tamil Nadu and Pondicherry did not touch
40.0 percent target of priority sector lending; this probably is the impact of prudential
banking norms. Also except for Assam, Haryana, Manipur, Nagaland, Tripura and Uttar
Pradesh all other states recorded a decline in priority sector lending share. Gujarat,
Maharashtra, Tamil Nadu. West Bengal, Chandigarh, Delhi and Pondicherry did not achieve
the 40.0 percent target of priority sector lending in 2000.
Table 2.6: Share of Agriculture in Priority Sector Non Food Gross Bank Credit Deployed
(Outstanding) (Rs. Cr.)
Years
1980-81
1981-82
1982-83
1983-84
1984-85
1985-86
1986-87
1987-88
1988-89
1989-90
1990-91
1991-92
1992-93
1993-94
1994-95
CGR % 1980-1/2009-10
CGR % 1980-1/1989-90
CGR% 1990-1/1999-00
CGR% 2000-1/2009-10

Priority
Sector
8504
10676
12322
14899
18409
21566
25050
29070
34219
40383
42915
45425
49832
53880
64161
16.91
18.63
13.94
26.39

Agricult
ure
3584
4615
5275
6144
7660
9058
10570
12009
13950
16526
16750
18157
19963
21208
23983
15.95
18.07
11.75
27.80

%
share
42.14
43.23
42.81
41.24
41.61
42.00
42.20
41.31
40.77
40.92
39.03
39.97
40.06
39.36
37.38

Years
1995-96
1996-97
1997-98
1998-99
1999-00
2000-01
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
2009-10

Priority
Sector
73329
84880
99507
114611
131827
154414
175259
211609
263834
381476
510738
635966
747380
915886
1118513

Agricult
ure
27044
31442
34869
39634
44381
51922
60761
73518
90541
125250
173972
230377
275342
338656
415414

%
share
36.88
37.04
35.04
34.58
33.67
33.63
34.67
34.74
34.32
32.83
34.06
36.22
36.84
36.98
37.14

Source: RBI, Currency and Finance, various years.

A large number of states, however, showed improvement in priority sector lending


over 1995. In 2009, Gujarat, Maharashtra, Meghalaya, Nagaland, West Bengal, Chandigarh
and Delhi were poorly performing states. Madhya Pradesh tops with 69.1 percent priority
sector lending. Thus, over the years, the performance of states in

priority sector lending is mixed. It is strange that even during the period of doubling of credit
flow to agriculture sector did not boost priority sector lending. The new guidelines on
priority sector lending also failed to improve the situation.
What is the share of agriculture sector in priority sector non-food gross bank
credit deployed (outstanding)? Table 2.6 shows that during the three decades since
1980-81, priority sector lending (outstanding) grew at rate of 16.91 percent while agriculture
credit grew at a rate of 15.95 percent. During the eighties, priority sector lending and
agricultural credit have grown at higher rate compared to nineties and growth in priority
sector lending has been higher than growth in agricultural credit. The decline in growth rate in
agriculture credit during the nineties has been higher than that in case of priority sector
lending. This means that other priority sectors must have witnessed higher growth compared
to agriculture credit. A significant improvement occurred during the first decade of 2000s
when growth rate more than doubled over the growth rates of nineties. In 1980-81, the
share stood at 42.14 percent and has fluctuated and declined by 2009-10. The lowest share
was observed in 2004-05 at 32.83 percent and the peak of 43.23 percent in 1981-82 has never
been achieved thereafter. However, the target of 18 percent priority sector lending for
agriculture sector since
1996-97 has never been achieved; it has been in the range of 11-13 percent throughout.
Agriculture sector has witnessed reduction in priority sector lending.
Table 2.7: Sectoral Deployment of Gross Bank Credit (Rs. crore)
Years
1996-97
1997-98
1998-99
1999-00
2000-01
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
CGR %

Gross Bank Priority


Credit Sector
258991
84880
300283
99507
342012
114611
400818
131827
469153
154414
536727
175259
669534
211609
764383
263834
1045954
374953
1443920
510175
1848187
635966
2247289
747380
2648501
915886
22.25
22.85

Agriculture
31442
34869
39634
44381
51922
60761
73518
90541
124269
173875
230377
275342
338656
23.13

Share of Agri.
in Total
12.14
11.61
11.59
11.07
11.07
11.32
10.98
11.84
11.88
12.04
12.47
12.45
12.79

Source: RBI, Report on Trend and Progress of Banking in India, various issues.

For instance in 1996-97, share of agriculture was 12.14 percent that fell to 10.98
percent in 2002-03 (table 2.7). It recovered in next year, a year before the base year of
doubling of credit flow to agriculture and has continuously risen since then, but never touched
18.0 percent. This is despite the fact that policies reflect pro-agriculture shift in the recent
times, the focus in the 11th five-year plan is to achieve 4 percent growth in agriculture.
Reforms have had a varied impact on formal sector finances across states in India. However,
it may be mentioned here that in quantum terms the credit flow across the sectors and states
has gone up significantly since the reforms. The gross bank credit during 1996-97 and 200809 grew at the rate of 22.25 percent, which is marginally lower than the growth of priority
sector lending. However, agricultural credit grew at slightly higher rate of 23.13 percent. Low
interest rates may have primarily influenced this positive trend.
The non-fulfilment of priority sector lending is the result of cautious approach adopted
by bankers to avoid bad loans, which may affect their non-performing assets. The scope of
priority sector lending has also been widened over the years. The interest deregulation has
imparted more flexibility to priority sector lending and the bankers have really used it to
direct credit to sectors that reduce their cost of delivery rather than follow the dictum of
timely credit delivery. The new guidelines are supposed to aim at overcoming the
crowding out effect against small loans, particularly to agriculture, only one-third of
amount of the big-ticket loans/ advances can be classified as direct agriculture.
Table 2.8: Sector-wise Growth rate of Bank Credit (%)
Sectors
Agriculture
Industry
Transport Operators
Professional Services
Personal Loans
Trade
Finance
SMEs
Total bank Credit

1980-81 to
1989-90
18.1
17.4
13.6
20.7
25.3
11.8
29.2
20.7
17.2

1990-91 to
1999-00
10.6
15.4
9.4
16.8
22.7
17.3
25.6
8.1
16.0

2000-01 to
2006-07
26.0
19.5
18.2
35.3
35.5
16.2
28.1
10.7
22.9

Source: RBI, Basic Statistical Returns of Scheduled Commercial Banks, various issues.

2.3.2. Total Credit Extended: Competing Sectors


One of the principal objects of nationalization of commercial banks was to bring about certain
structural changes in the credit deployment. To begin with we look at the trends in the credit
disbursement across sectors. The total credit extended by scheduled commercial banks grew by
17.2 percent during the eighties while during the nineties it fell to 16 percent (table 2.8).
This decline was due to both demand and supply factors. The tight monetary policy
during the first half of the nineties had led to decline in demand for credit. On the supply side,
introduction of prudential norms relating to income recognition, asset classification

and

provisioning in early 1990s made banks cautious. It recovered to touch 22.9 percent during
2000-01 and 2006-07. In the case of agriculture sector, the credit grew at the rate of 18.1
percent during the eighties while during the nineties, it fell drastically to 10.6 percent.
However, during 2000-01 and 2006-07, the growth has been healthy at 26.0 percent 5. This
period also saw effort to boost agriculture credit deployment though doubling of credit to
agriculture as per the budget announcement of
2003-04 6. The downward trend in interest rates also contributed to this growth. The table
also shows a significant shift towards personal loans 7 and finance sectors, which observed
healthy growth during the three phases under study 8. Overall, financial deepening from low
base, structural shifts in supply elasticity, rise in efficiency of credit markets and policy
initiatives to improve credit flow to sectors like agriculture and SMEs. The policy directions
over the period have thus favoured few sectors like agriculture, small industries, weaker
sections of the society etc. Thus structural change
has occurred in credit deployment due to policy directions.

27

It is argued that it is essential to allow for difference between the credit requirements of
agriculture and commodity industry because the latter has relatively smooth flow of purchases
of inputs and sales of outputs over the year. Agriculturists, on the other hand, systematically
require to buy inputs and to commit themselves to payments several months before their
products are harvested. This latter feature renders it inappropriate to view the ratio of inputs
to outputs in commodity industry than in agriculture as justifying a larger ratio of credit to
net product. It also suggests that even the criterion of same ratio of credit to net national
product (NNP) in each sector is too kind to commodity industry. Commodity industry, besides
this, needs less credit per unit of output than agriculture because both input and output
flows are smoother over the year 9. It is also organized in larger units with more access to
internal savings and to the private capital market. It is also less liable to the draining of
production credit towards the funding of slack season family consumption. Unlike agriculture,
it seldom turns credit-financed inputs into subsistence products which are consumed by the
family that owns the firm and which thus- however efficiently produced- do little to help repay
trade credit.
2.3.3. Outstanding Credit
In terms of share in credit, in 1980, the share of agriculture outstanding credit of scheduled
commercial banks was 15.7 percent, which got improved marginally to 15.9 percent in 1990
(table 2.9).
Table 2.9: Distribution of Outstanding Credit of Scheduled Commercial Banks (share in total
credit-%)
Years
1980
1990
1995
2000
2001
2002
2003
2004
2005
2006
2007

Agriculture
15.7
15.9
11.8
9.9
9.6
9.8
10.0
10.9
10.8
11.4
11.8

Direct Finance
12.2
13.8
10.2
8.4
8.1
7.2
7.8
8.0
8.2
8.2
8.8

Indirect Finance
3.5
2.1
1.7
1.5
1.5
2.5
2.2
3.0
2.6
3.2
3.0

Source: RBI, Basic Statistical Returns of Scheduled Commercial Banks, various issues.

The reforms saw a significant decline in share of agriculture to 11.8 percent in

28

1995 and further to 9.9 percent in 2000. It recovered in 2003 and stood at 11.8 percent (1995
level) in 2007. The major share has been of the direct finance to agriculture, but this too has
declined since the onset of financial reforms. In 2007, the share of direct finance was 8.8
percent.
Table 2.10: Distribution of SCBs Credit Flow to Agriculture across States (outstanding) (%)
States

Andaman
Andhra
Pradesh
Arunachal
Assam
Bihar
Chandigarh
Chhattisgarh
Dadra Haveli
Daman & Diu
Delhi
Goa
Gujarat
Haryana
Himchal
Pradesh
J&K
Jharkhand
Karnataka
Kerala
Lakshadweep
Madhya
Pradesh
Maharashtra
Manipur
Meghalaya
Mizoram
Nagaland
Orissa
Pondicherry
Punjab
Rajasthan
Sikkim
Tamil Nadu
Tripura
Uttar Pradesh
Uttarakhand
West Bengal

19923
0.01

19956
0.01
12.95

1999-00

2000-1
0.01
12.30

20012
0.05
11.83

20023
0.04
11.38

0.01
12.47

11.48
0.04
1.22
5.17
0.52

0.04
1.11
4.95
0.48

0.04
0.63
3.12
0.56

0.03
0.54
3.35
0.70

0.03
0.60
3.32
0.89

0.01
0.01
3.09
0.15
5.38
3.46
0.34

0.01
0.00
1.52
0.15
5.21
3.79
0.40

0.01
0.01
3.07
0.11
5.04
3.67
0.38

0.01
0.00
3.39
0.07
5.87
4.28
0.46

0.03
0.62
2.69
1.51
10.86
0.00
0.00
4.76
0.07
5.38
4.11
0.54

0.01
0.41
0.97
0.16
7.51
3.91
0.38
0.32

0.30

0.32

0.33

0.35

8.98
4.11
0.00
6.48

9.82
4.46
0.00
6.05

11.57
4.66
0.00
7.01

10.16
4.80
0.00
6.77

10.46
4.20
0.00
6.65

8.71
0.05
0.10
0.04
0.10
2.24
0.13
5.83
5.17
0.03
10.44
0.21
11.14

9.79
0.05
0.13
0.03
0.09
2.38
0.16
5.80
3.98
0.02
11.58
0.21
10.00

10.41
0.04
0.07
0.02
0.05
2.06
0.11
6.79
5.93
0.02
9.48
0.16
11.01

9.63
0.05
0.05
0.02
0.04
1.98
0.10
6.86
6.14
0.02
9.00
0.13
12.11

10.19
0.03
0.07
0.03
0.03
1.94
0.11
6.28
6.39
0.01
7.90
0.12
11.48

4.12

3.15

2.40

2.61

2.93

0.33
6.14
10.23
4.03
0.00
6.47
9.83
0.03
0.05
0.01
0.03
1.70
0.09
6.24
6.39
0.02
8.21
0.12
12.25
15.20
2.87

20034
17.29

20045
12.61

20056
26.43

20067
24.42

20078
30.04

20089
5.17

17.93
9.97
10.15
19.93
10.62
11.90
5.12
1.93
4.67
2.51
9.78
21.66

17.81
8.41
7.37
23.11
8.79
12.32
1.31
0.36
4.83
2.02
10.10
20.97

17.83
10.90
8.54
22.74
13.84
13.30
1.73
0.67
6.36
3.00
11.22
20.75

18.77
8.17
8.33
24.15
15.55
13.24
1.33
2.46
6.95
4.39
11.50
23.84

16.83
6.94
8.69
22.21
10.61
12.62
0.53
2.74
5.06
2.40
14.87
22.08

16.52
5.47
10.04
36.03
16.92
12.60
0.88
0.45
4.75
2.43
10.32
19.41

9.26
4.54
7.97
15.07
13.40
7.37

12.29
3.76
10.03
14.48
11.31
11.66

13.92
4.09
9.49
12.53
11.22
23.99

14.68
7.60
10.05
12.01
13.94
3.91

14.55
6.99
7.91
12.39
16.54
5.10

15.01
7.23
7.26
12.59
14.75
10.22

24.52
4.73
10.00
7.00
6.97
9.78
10.81
9.19
19.86
22.45
5.68
9.68
14.13
22.70
14.85
17.29

24.76
4.26
9.05
1.91
20.81
9.80
10.52
10.30
22.37
21.52
4.89
10.76
13.25
24.28
13.31
12.61

25.36
5.24
10.38
5.40
13.77
10.58
11.43
10.74
21.50
22.25
4.46
11.53
11.80
25.77
17.77
26.43

25.14
4.87
12.64
10.28
11.99
9.52
12.67
11.60
23.84
23.96
6.19
12.00
13.07
25.57
14.89
24.42

25.83
4.20
15.53
7.57
11.67
12.06
14.19
14.01
20.15
21.94
3.55
11.43
14.58
25.44
15.04
30.04

28.09
3.52
14.93
7.80
11.25
7.39
14.76
11.92
21.34
22.57
7.43
11.98
13.87
28.18
17.81
5.17

Source: Computed from CMIE data (Money and Banking, October 1999 and September 2004, November
2010).

One important component of priority sector lending of banking in India was


earmarking of 18 percent net bank credit for agriculture sector. From the onset of

29

economic reforms, Indian agriculture had certain regions and sections that were bypassed by
the formal sector financial institutions 10. What has happened to regional

30

dispersal of credit during the reforms? Agriculture has observed changes across states11
and so the credit requirement should also be expected to change.
Table 2.10 shows that regional imbalances continued to exist since the initiation of
economic reforms. The top five states viz., Andhra Pradesh, Uttar Pradesh, Tamil Nadu,
Karnataka and Maharashtra accounted for 50.75 percent of all agriculture credit flow from
commercial banks in 1992-93. The share of big five stood at 51.90 percent in
2002-03, a gain of 1.15 percentage points. If we include Madhya Pradesh, Punjab and
Rajasthan, then these 8 states account for 71 percent of all credit flow. The northeast region is
largely a bypassed region. Banks appear to be reluctant to lend there. Half the Indian
States/union territories have a share of below one percent in credit. There is uneven flow of
agricultural credit across states in India and this needs rectification.
The declining share of agriculture in capital formation relative to its share in real gross
domestic product (GDP) in recent years is a cause of concern and the trends in credit flow
across states would exacerbate the situation. The credit deposit ratio of the rural branches of
commercial banks has also affected this trend. Banks have also used Rural Infrastructure
Development Fund (RIDF) to park the shortfall in agriculture lending target. In the initial
years, banks could earn 11 percent interest on this fund (could park up to 1.5 percent of
shortfall), though now slabs have been reduced.
However, a sudden change took place in 2003-04 with policy to double the flow of
credit to agriculture and share of agriculture credit (outstanding) in total bank credit of
commercial banks increased across states significantly. Andaman and Nicobar Islands,
Arunachal Pradesh, Assam, Bihar, Chandigarh, Dadra Nagar & Haveli, Haryana, Himachal
Pradesh, Kerala, Lakshadweep, Madhya Pradesh, Manipur, Meghalaya, Mizoram, Nagaland,
Orissa, Pondicherry, Punjab, Rajasthan, Sikkim, Tripura, Uttar Pradesh and West Bengal
observed significant improvement in share of agriculture credit in 2003-04 over the
previous year. However, Maharashtra and Uttarakhand
observed a decline.

11

V.S. Vyas (2004), op cit.

28

The next five years across states observed fluctuations in share of agriculture credit in
total credit with never reaching low level of period prior to 2003-04. There is exception
though- Maharashtra and it could be high indebtedness of farmers and suicides by
farmers. However, doubling of credit phase did not witness consistent increase in share of
agriculture credit.
Table 2.11: Per Hectare SCBs Credit by States (Rs. outstanding)
States
AP
Arunachal
Assam
Bihar
Chhatisgarh
Goa
Gujarat
Haryana
HP
J&K
Jharkhand
Karnataka
Kerala
MP
Maharashtra
Manipur
Meghalaya
Mizoram
Nagaland
Orissa
Punjab
Rajasthan
Sikkim
Tamil Nadu
Tripura
Uttar Pradesh
Uttarkhand
West Bengal
India

199293
1994
353
703
1225

199596
2860
484
810
1424

199900
4370
640
707
1426

2233
1511
1480
859
664

2661
1538
1668
1013
810

3988
2342
2870
1894
1337

1603
2987
600
918
589
963
774
1008
528
1710
568
479
3272
1046
961

2365
4189
693
1323
868
1538
724
1154
708
2155
583
503
5322
1404
1117

4366
7081
1220
2125
955
1162
989
837
1100
3758
1403
686
6635
1485
1921

1069
1194

1012
1544

1149
2405

200001

2001-02

2002-03

2003-04

2004-05

2005-06

2006-07

2007-08

5593
821
946
1861
851
2452
3599
4483
3094
2023
3100
5450
8886
2130
3018
981
1550
2272
659
1580
5066
2127
608
7975
2623
2740
3378
2059
2656

6774
884
1178
2067
999
3093
3805
4936
4264
2266
1955
6657
10234
2285
3555
907
1261
1165
503
1464
5964
2334
1127
10016
2989
3456
4178
2230
3454

9326
10304
1328
2421
1433
4379
4267
6552
4591
2586
2573
8444
14682
2994
4474
1139
2884
2157
555
1828
7195
4145
1259
17463
2701
4244
5133
4030
4033

11786
1191
1388
3773
1782
4210
5257
7626
8054
2890
3905
10956
15203
3674
5564
1769
1844
9901
807
2423
9242
3254
1492
23387
3503
5461
6232
3991
5482

14388
2565
2234
5622
2516
7804
7894
11089
10879
3770
4538
12182
19388
4683
9258
2753
7528
7362
1273
3372
11108
4446
2120
28392
4640
7139
10489
6234
6494

18087
2462
2867
8987
3281
13639
10809
15227
13429
9274
5872
15748
28499
5432
10817
4363
6390
8694
1761
4275
16747
5949
4041
38309
6286
9248
11581
8549
8945

22819
3804
3601
8788
4505
8680
17990
17280
15106
8778
7937
19694
41411
6890
11750
6191
5701
11557
3315
5325
19530
7420
3265
45455
8249
11131
14403
9759
11913

5593
821
946
1861
851
2452
3599
4483
3094
2023
3100
5450
8886
2130
3018
981
1550
2272
659
1580
5066
2127
608
7975
2623
2740
3378
2059
13999

Source: Computed from CMIE data.

At the all India level, the credit per hectare by commercial banks has more than
doubled between 1992-93 and 1999-2000 (table 2.11). In 1992-93, 9 states (of 25) had per
hectare credit of above the national level while in 1999-2000, 7 states exceeded the national
average. The difference between the lowest and the highest average credit in
1992-93 across states was Rs.2919 and this gap widened by 1999-2000 to Rs.6441. In
2007-08, the lowest per hectare credit (outstanding) was recorded in Sikkim at Rs.608 and
the highest per hectare credit outstanding in Kerala at Rs.8886; thus the gap has

risen to Rs.8278. This means that regional inequality has increased over time and
especially during the reform period. This should be a cause of concern. Vyas committee
in June 2004 has looked at the agriculture lending in India and suggested significant steps
to upgrade agriculture lending 12.

2.4. Institutions
Credit

and

Agriculture

Despite wide network, the cooperative banks have lost their position to commercial
banks, particularly since the mid-1990s (table 2.12). The share of former in 2006-07
was almost one-third of commercial banks when in 1992-93 share of commercial banks
was almost half that of cooperative banks 13. During this period, the share of RRBs has
almost doubled. Growth in flow of agriculture credit in the recent times has been
significant. This is largely due to doubling of credit effort by government in 2004-05 14.
Table 2.12: Institutional Credit to Agriculture (Rs.
crore)
Year
1985-86
1986-87
1987-88
1988-89
1989-90
1990-91
1991-92
1992-93
1993-94
1994-95
1995-96
1996-97
1997-98
1998-99
1999-00
2000-01
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08

Coop.
3874
4207
4420
4851
5082
3408
5800
9378
10117
9406
10479
11944
14085
15916
18363
20260
23604
23716
26959
31424
39786
42480
48258

%
share
55.30
52.48
52.44
53.40
51.85
38.53
51.78
61.82
61.34
50.18
47.56
45.22
44.08
43.14
39.69
38.36
38.04
34.10
31.00
25.07
22.04
18.52
18.95

RRBs

596
831
977
1083
1381
1684
2040
2538
3172
4220
4854
6070
7581
12404
15223
20435
25312

Institutions
% SCBs
%
share
share
3131 44.70
3809 47.52
4009 47.56
4233 46.60
4719 48.15
5438 61.47
5.32
4806 42.90
5.48
4960 32.70
5.92
5400 32.74
5.78
8255 44.04
6.27
10172 46.17
6.38
12783 48.40
6.38
15831 49.54
6.88
18443 49.99
6.86
7.99
7.82
8.73
8.72
9.9
8.43
8.91
9.94

24733
27807
33587
39774
52441
81481
125477
166485
181088

53.46
52.64
54.13
57.18
60.29
65.02
69.52
72.57
71.11

Total
7005
8016
8429
9084
9801
8846
11202
15169
16494
18744
22032
26411
31956
36897
46268
52827
62045
69560
86981
125309
180486
229400
254658

%
change
14.4
5.2
7.8
7.9
-9.7
26.6
35.4
8.7
13.6
17.5
19.9
21.0
15.5
25.40
14.18
17.45
12.11
25.04
44.06
44.03
27.10
11.01

Per Ha.
Credit Rs.
391
449
478
532
538
485
603
832
889
1005
1175
1394
1682
1916
2438
2825
3257
3953
4562
6542
9349
11872
13004

30

Year
2008-09
2009-10
CGR %
2009-10
CGR %
1989-90
CGR %
1999-00
CGR %
2009-10

Coop.
46192
57500

%
share
15.30
15.67

RRBs
26765
34456

Institutions
% SCBs
%
share
share
8.87
9.39

228951
274963

75.83
74.94

Total

%
change
18.55
301908

Per Ha.
Credit Rs.

366919

1985-06/
12.67

21.48

18.67

17.56

7.09

9.70

8.29

8.41

1985-06/
1990-91/
16.26

22.04*

21.14

18.88

18.24

12.37

28.34

31.78

26.11

27.03

2000-01/

Note: up to 1990-91 RRBs and commercial banks are clubbed. *- for the period 1991-92 to 1999-00.
Source: GoI, Economic Survey and NABARD, Annual Reports, various
years.

However, these aggregates hide much more than they reveal. Doubling of credit
did not take place in most of the districts and below at block and branch level 15. Then
there is exclusion that is taking place of marginal and small farmers who constitute
about 80 percent of holdings in India. In this scenario, the commercial banks recorded a
considerable growth (from 16.4 percent during 1985-86 to 1994-95 to 74.4 percent during
1995-96 to 2006-07) against the growth of cooperative banks (14.3 percent to
18.1 percent during the same period). However, if we change the periods, a different
picture emerges. For instance, the commercial banks recorded 9.7 percent growth
during second half of the eighties and much higher growth rate of 21.14 percent during
the nineties, which further improved to 31.78 percent during 2000-01 and 2009-10.
Cooperative banks recorded slower growth rate during this period, but the period
2000-01 to 2009-10 observed a slow down to 12.37 percent from 16.26 percent from
the previous decade. It is also noticed that commercial banks till 1989-90 disbursed lower
quantum of credit to agriculture sector, but overtook co-operative banks in 199091 and the gap widened significantly since 2003-04 and the ratio stood at 1:4.78 in
2009-10; it was 0.81 in 198586.
2.4.1. Ground level Credit
Flow
The ground level credit flow for agriculture and allied activities was Rs.107853.26 crore
in 2004-05 which increased to Rs.253966.39 crore in 2007-08; recording a growth rate of
32.5 percent annual. The GLC annual growth rate has been the highest in southern region
(36.4 percent) and the minimum in western region (14.9 percent) (table 2.13).
31

Table 2.13: State-wise Flow of Ground level Credit for Agriculture and Allied Activities
(Rs. Lakh)
States

Ground level Credit (GLC)

Distribution %

2004-05

2005-06

2006-07

2007-08

200405

200506

200607

200708

CGR %

Chandigarh
Delhi
Haryana
Himachal Pradesh
Jammu & Kashmir
Punjab
Rajasthan
Northern region
Arunachal Pradesh
Assam
Manipur
Meghalaya
Mizoram
Nagaland
Sikkim
Tripura
Northeastern
region
Andhra Pradesh
Karnataka
Kerala
Pondicherry
Tamil Nadu
Lakshadweep
Southern region
A&N Islands
Bihar
Jharkhand
Orissa
West Bengal
Eastern region
Daman & Diu
Goa
Gujarat
Maharashtra
D&N Haveli
Western region
Chhattisgarh
Madhya Pradesh
Uttar Pradesh
Uttarakhand
Central region
Other states

90803
388227
864028
61581
11184
1279416
517225
3212464
1257
26724
1923
2474
2019
1978
541
3817

162231
1307623
1084743
95482
90545
1547980
756234
5044838
1337
66332
5766
5657
2432
2402
1169
8476

385202
1546895
1199275
108169
59036
1988580
1058643
6345800
2328
54118
3034
4501
3282
4611
1305
9350

280007
1378437
1344213
147417
39241
2414647
1224038
6828000
2144
65272
4832
4075
4355
4101
1365
9654

0.84
3.60
8.01
0.57
0.10
11.86
4.80
29.79
0.01
0.25
0.02
0.02
0.02
0.02
0.01
0.04

0.92
7.41
6.15
0.54
0.51
8.77
4.29
28.59
0.01
0.38
0.03
0.03
0.01
0.01
0.01
0.05

1.71
6.88
5.34
0.48
0.26
8.85
4.71
28.24
0.01
0.24
0.01
0.02
0.01
0.02
0.01
0.04

1.10
5.43
5.29
0.58
0.15
9.51
4.82
26.89
0.01
0.26
0.02
0.02
0.02
0.02
0.01
0.04

52.9
48.7
15.3
31.6
39.6
24.1
33.9
28.3
24.1
28.1
23.6
13.5
29.8
32.8
33.5
33.4

40733

93571

82529

95798

0.38

0.53

0.37

0.38

27.6

1349050
728127
571229
12716
1020670
62
3681854
587
181726
40739
198549
302168
723769
5
8008
660930
742083
76
1411102
78740
529344
1042864
63232
1714180
1224

2050124
1291353
1032413
23521
1948810
115
6346336
1528
212458
50588
312919
644134
1221627
40
13134
1110647
1493814
158
2617793
123321
690396
1405866
93782
2313365
4870

2466909
1549616
1254998
19636
2711538
115
8002812
6015
304621
61949
392291
774480
1539356
745
18147
1192297
2140106
767
2177912
149461
955597
1882625
141629
3129312
18451

2917318
1873723
1687640
32977
3071714
153
9583525
679
313596
56564
439002
972339
1782180
1191
26673
1369540
2327400
327
2382264
192741
1257902
1778350
153012
3382005

12.51
6.75
5.30
0.12
9.46
0.00
34.14
0.01
1.68
0.38
1.84
2.80
6.71
Neg.
0.07
6.13
6.88
neg.
13.08
0.73
4.91
9.67
0.59
15.89
0.01

11.62
7.32
5.85
0.13
11.05
0.00
35.97
0.01
1.20
0.29
1.77
3.65
6.92
Neg.
0.07
6.30
8.47
neg.
14.84
0.70
3.91
7.97
0.53
13.11
0.03

10.98
6.90
5.59
0.09
12.07
0.00
35.62
0.03
1.36
0.28
1.75
3.45
6.85
Neg.
0.08
5.31
9.52
neg.
9.69
0.67
4.25
8.38
0.63
13.93
0.08

11.49
7.38
6.65
0.13
12.09
0.00
37.74
neg.
1.23
0.22
1.73
3.83
7.02
Neg.
0.11
5.39
9.16
neg.
9.38
0.76
4.95
7.00
0.60
13.32

28.4
35.2
41.1
30.7
43.8
31.1
36.4
19.8
22.1
12.6
29.8
44.6
34.1
592.0
48.2
25.3
46.1
81.4
14.9
33.3
33.9
20.8
35.8
26.4

India

10785326

17642400

22470322

25396639

100

100

100

100

32.5

Source: NABARD, Annual Reports, Mumbai, various years.

32

Surprisingly, Maharashtra in this region has witnessed highest farmer


suicides 16. The national average growth rate has been surpassed by southern and
eastern region
only. Further in growth performance, we find that Tamil Nadu in southern region observed
43.8 percent growth rate while Andhra Pradesh had the lowest growth rate of
28.4 percent. In western region, Goa cornered the top position (48.2 percent) with
Gujarat recording a significant decline of 74.7 percent. In the northern region, Chandigarh
cornered the top position (52.9 percent) with Haryana recording a significantly lower rate of
15.3 percent while in north eastern region, we find that Sikkim observed 33.5 percent
growth rate and Meghalaya the lowest growth rate of
13.5 percent.
Overall, all states in north- eastern region have negligible share in credit flow at the all
India level; less than 0.3 percent. Eastern region recorded highest growth rate in credit flow of
44.6 percent in West Bengal and the lowest in Jharkhand at 12.6 percent. The flow of credit in
the region is also very low; less than 4 percent. In the western region, the highest growth in
credit flow is in Goa (if we exclude Daman & Diu and D&N Haveli) and the lowest in
Gujarat (25.3%). Gujarat surprisingly is showing very high growth in agriculture sector
growth in the recent time of more than 10 percent. In the central region, Uttarakhand cornered
the top position (35.8%) with Uttar Pradesh recording a lower rate of 20.8 percent. Thus, this
period of doubling of credit flow into agriculture and allied sector has shown a mixed picture
and wide inter-state variations. Besides, even during these years, northern region observed a
continuous decline its share in total ground level credit for agriculture and allied sectors
between 2004-05 and 2007-08 while the share of north- eastern region remained the same.
The share of southern region in credit flow at the all India level has improved from 34.14
percent in
2004-05 to 37.74 percent in 2007-08. A marginal improvement is also observed in the share
in credit flow in eastern region, but observed a decline from 13.08 percent in
2004-05 to 9.38 percent in 2007-08. The same is the case of central region.
2.4.2. Credit per Hectare and Credit Intensity
There are wide variations in the availability of institutional credit per hectare of gross cropped
area in different states. If we exclude Chandigarh and Delhi, it was as high as Rs.32605 in
Pondicherry. Kerala (Rs.19259), Tamil Nadu (Rs.17332) and Punjab (Rs.16132) follow it.
33

The lowest average of Rs.250 is in Daman & Diu during 2004-05 (table 2.14). In 2007-08,
per hectare credit flow increased across states, though major

34

increases were observed in Punjab, Haryana, Himachal Pradesh, Kerala, Pondicherry, Tamil
Nadu and Daman & Diu. The accessibility to institutional credit is higher in the southern
region where the level of agricultural development is relatively higher.
Table 2.14: Per Hectare GLC for Agriculture and Allied Activities (Rs.)
States
Chandigarh
Delhi
Haryana
Himachal Pradesh
Jammu & Kashmir
Punjab
Rajasthan
Northern region
Arunachal Pradesh
Assam
Manipur
Meghalaya
Mizoram
Nagaland
Sikkim
Tripura
North eastern region
Andhra Pradesh
Karnataka
Kerala
Pondicherry
Tamil Nadu
Lakshadweep
Southern region
A&N Islands
Bihar
Jharkhand
Orissa
West Bengal
Eastern region
Daman & Diu
Goa
Gujarat
Maharashtra
D&N Haveli
Western region
Chhattisgarh
Madhya Pradesh
Uttar Pradesh
Uttarakhand
Central region
Other states
India

Source: computed.

2004-05
4540150
862727
13448
6462
1015
16132
2456
8562
493
686
808
934
2081
521
440
1285
734
10776
5685
19259
32605
17332
2067
10758
4193
2456
1973
2277
3173
2611
250
4738
5871
3318
262
4172
1378
2620
4086
5120
3254
4221
5631

2005-06
8111550
2971870
16678
10147
8224
19674
3485
13221
503
1700
2563
2193
2482
621
950
2835
1684
15343
9913
34575
65336
32303
3833
17904
10914
2873
2400
3505
6757
4366
2000
7726
9849
6623
564
7692
2146
3521
5555
7738
4460
9139

2006-07
19260100
3597430
18756
11398
5243
25297
4916
16740
859
1449
1348
1830
3607
1136
1061
3096
1529
19256
12459
43009
54544
46407
3833
23504
42964
3946
3577
4378
8038
5486
37250
10551
9793
9482
2645
6232
2607
4751
7295
11705
5920
1845100
11629

2007-08
14000350
3132811
20815
15182
3460
30682
5512
17649
788
1700
2056
1440
4536
1025
1157
3306
1731
21503
14533
61124
94220
52824
5100
27324
4850
3965
2366
4869
9971
6128
59550
15690
11204
10273
1211
6791
3353
6161
7134
12134
6460
12968

Various studies have reported similar results 17. It is observed that there is falling share of
agricultural credit as a proportion of total credit. The share of agriculture value added has been
falling as a share of total GDP. Hence, credit to agriculture may also be expected to fall as a
proportion of total credit, assuming relative stability in the share of purchased inputs as a
proportion of vale added 18. The share of agricultural credit as a proportion of agricultural GDP
has been rising until the 1980s. However, a fall did occur in the mid-1990s, but it did rise again
in the recent times. It is true, however, that agricultural credit has indeed fallen as a proportion of
total credit (table 2.15).
Table 2.15: Ratio of Direct Agricultural Credit (Disbursements) to Agricultural GDP, Total
GDP and Total Credit
1950-51
1960-61
1970s
1980s
1990s
1999-00
2000-01
2001-02
2002-03
2003-04

Agricultural Credit/
Agricultural GDP
0.5
3.3
5.4
8.3
7.4
10
11.3
12.2
13.7
15.1

Agricultural Credit/
Total GDP
0.3
1.3
2.1
2.6
2.0
2.6
2.8
3.0
3.1
3.5

Agricultural Credit/ CS
na
na
10.8
8.5
6.4
8.1
7.9
8.2
7.8
8.6

Note: CS- other banks credit to commercial sector (outstanding) proxy for total credit.
Source: Report of Currency and Finance, various issues; RBI, Handbook of Statistics on Indian Economy;
NABARD, Annual Report, various years.

Table 2.16: Gross Value of Output, Input and Short-term Credit (Rs. cr. current prices)
Year
1993-94
1998-99
1999-00
2000-01
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09

Gross value
of output

Value
of input

Short-term
credit

271839
488731
514718
518693
562024
557035
635104
635994
723311
802759
913052
1003268

55401
93416
103170
107020
112194
114613
127365
179343
201902
223341
240177
258650

5426
10821
12610
15442
18882
23324
31972
74064
105350
138455
183519
147119

Short-term credit
as % of value of
input
9.79
11.58
12.22
14.43
16.83
20.35
25.10
41.30
52.18
61.99
76.41
56.88

Source: National Accounts Statistics and RBI, Handbook of Statistics on Indian Economy.

Short-term credit
as % of Value of
output
2.00
2.21
2.45
2.98
3.36
4.19
5.03
11.65
14.56
17.25
20.10
14.66

The present agricultural credit system is addressing the needs of food grains
production. With the share of food grains production declining as a proportion of total
agricultural production, it is satisfying that agriculture credit has not fallen as a proportion of
agricultural GDP. With the share of agriculture in GDP declining continuously, from 36
percent in 1981 to 29 percent in 1991 and then to 22 percent in
2001 and further to

percent in 2007-08, it is to be expected that the share of

agricultural credit would fall as a proportion of total credit, unless this trend is
corrected by the increasing commercialisation of agriculture which is happening. The
evidence is there in the recent times that agricultural credit has been rising as a share of both
the value of inputs and the value of output (table 2.16).
Table 2.17: Credit Intensity and Other Correlates (Rs. crore)

Years
1985-86
1986-87
1987-88
1988-89
1989-90
1990-91
1991-92
1992-93
1993-94
1994-95
1995-96
1996-97
1997-98
1998-99
1999-00
2000-01
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
CGR % 1985-86/ 2006-07
CGR % 1985-86/1989-90
CGR % 1990-91/1999-00
CGR % 2000-01/2006-07

Credit
Intensity
%
8.83
9.42
8.90
7.77
7.58
5.87
6.36
7.68
7.20
7.10
7.68
7.65
8.73
8.77
10.36
11.77
12.75
14.74
16.34
22.68
28.20
20.91

Agricultural
credit/Total
GDP %
31.34
30.19
29.68
30.83
29.61
29.72
30.16
29.49
29.38
28.93
26.82
27.65
26.36
26.26
25.21
23.63
23.42
21.03
21.15
19.35
18.96
18.26

Agriculture
credit
7005
8016
8429
9084
9801
8846
11202
15169
16494
18744
22032
26411
31956
36897
46268
52927
62045
69560
86981
125309
180486
149343
16.98
8.29
18.88
23.17

Total
GDP
at
Agriculture &
factor
allied GDP at
cost
factor cost
79294
252998
85108
281876
94677
318970
116925
379294
129222
436403
150800
507487
176166
584091
197569
669872
229172
780070
263895
912156
286946 1069805
345020 1247628
366125 1388729
420486 1601114
446515 1771095
449565 1902284
486617 2077658
472060 2244725
532342 2517462
552422 2855326
639990 3376200
714254 3912087
11.03
13.84
13.82
14.88
13.06
15.32
7.77
12.81

Source: CSO, National Accounts Statistics and RBI, Handbook on Indian Economy, Mumbai.

Credit intensity has improved over the years since 1985-86 from 8.83 percent to
28.2 percent in 2005-06 after remaining more or less stable till 1998-99 (table 2.17). The
present decade observed a continuous increase. In fact, credit intensity improved almost 3
times during this period. However, share in total GDP of agriculture credit has declined from
31.34 percent in 1985-86 to 18.26 percent in 2006-07. This period hardly observed financial
deepening. Growth in agriculture credit during 1985-86 and 2006-07 was 16.98 percent when
GDP from agriculture and allied sector (at factor cost) grew at
11.03 percent and GDP grew at 13.84 percent. In the latter half of eighties, agriculture credit
observed growth of 8.29 percent while GDP from agriculture and allied sector (at factor cost)
grew at 13.82 percent and GDP grew at 14.88 percent. The decade of nineties
observed growth in agriculture credit of 18.88 percent while GDP from agriculture and allied
sector (at factor cost) grew at 13.06 percent and GDP grew at
15.32 percent. During 2000-01 and 2006-07, the respective growth rates were 23.17 percent,
7.77 percent and 12.87 percent. Table 2.17 also reveals that growth in agriculture has been
higher than the growth rates in GDP from agriculture and allied and total GDP, but in the
current decade, when growth in agriculture credit is high and improved, the growth rates of
GDP from agriculture and allied and total GDP observed a decline compared to the previous
decade.
2.4.3. Short- and Long-term Credit Flow
Of the total agriculture credit flow in 1998-99, 64.85 percent constituted short-term crop
loan while investment credit share is 35.15 percent. It remained between 62.6065.53 percent during 1998-99 and 2003-04 but the share declined during next two years
to rise again in 2006-07 to 60.36 percent and peaked in 2007-08 at 73.53 percent. It
marginally declined, however, in 2008-09 (table 2.18 and figure 2.1).
Table 2.18: Flow of Credit to Agriculture Sector (Rs. crore)
ST (Prod.)
Coop banks
RRBs
CBs
Others
Total
Per ha. Credit
Rs.
MT/LT
Coop banks
RRBs
CBs
Others

19981999
12514
1710
9622
59
23905

19992000
14771
2423
11697
74
28965

20002001
16528
3245
13486
55
33314

20012002
18787
3777
17904
41
40509

20022003
19668
4775
21104
39
45586

1241

1503

1779

2127

2590

2003- 2004200520062004 2005


2006
2007
22640 27157 34930 38622
6088 10010 12712 16631
26192 36793 57640 83202
57
104
68
54977 74064 105350 138455

200720082008
2009
40515 29214
20715 17458
122289 100447
183519 147119

2884

3867

5457

7165

9371

3356 3489 4190 4737 3968 4235


750
749
974
1077 1295 1493
8821 13036 14321 15683 18670 26249
30
29
28
39
41
27

4074
2394
44688
89

4474
2511
67837
314

3858
3804
83283

3169
4099
58798

2420
3034
48085

Total
Per ha. Credit Rs.
All Credit
Coop banks
RRBs
CBs
Others
Total
Per ha. Credit Rs.
ST (Prod.)
Coop banks
RRBs
CBs
Others
Total
MT/LT
Coop banks
RRBs
CBs
Others
Total
All Credit
Coop banks
RRBs
CBs
Others
Total

12957

17303

19513

21536

23974

32004

51245

75136

90945

66066

53539

673

912

1043

1131

1362

1679

2675

3892

4707

3374

673

15870
2460
18443
87
36860

18260
3172
24733
103
46268

20718
4219
27807
83
52827

23524
4854
33587
80
62045

23636
6070
39774
80
69560

26875
7581
52441
84
86981

31231
12404
81481
193
125309

39404
15223
125477
382
180486

42480
20435
166485

43684
24814
181087

31634
20492
148532

229400

249585

200658

1914

2438

2825

3257

3953

4562

6542

9349

11872

12745

52.35
7.15
40.25
0.25
100

51.00
8.37
40.38
0.26
100

49.61
9.74
40.48
0.17
100

46.38
9.32
44.20
0.10
100

43.14
10.47
46.29
0.09
100

41.18
11.07
47.64
0.10
100

36.67
13.52
49.68
0.14
100

33.16
12.07
54.71
0.06
100

27.89
12.01
60.09

22.08
11.29
66.64

19.86
11.87
68.28

100

100

100

25.90
5.79
68.08
0.23
100

20.16
4.33
75.34
0.17
100

21.47
4.99
73.39
0.14
100

22.00
5.00
72.82
0.18
100

16.55
5.40
77.88
0.17
100

13.23
4.67
82.02
0.08
100

7.95
4.67
87.20
0.17
100

5.95
3.34
90.29
0.42
100

4.24
4.18
91.58

4.80
6.20
89.00

4.52
5.67
89.81

100

100

100

43.05
6.67
50.04
0.24
100

39.47
6.86
53.46
0.22
100

39.22
7.99
52.64
0.16
100

37.91
7.82
54.13
0.13
100

33.98
8.73
57.18
0.12
100

30.90
8.72
60.29
0.10
100

24.92
9.90
65.02
0.15
100

21.83
8.43
69.52
0.21
100

18.52
8.91
72.57

17.50
9.94
72.56

15.77
10.21
74.02

100

100

100

Note: Up to January 2009. Commercial Banks- CBs; Cooperative banks- coops; regional rural banks- RRBs
and commercial banks include both public sector and private banks.
Source: NABARD, Annual Reports, various years.

Figure 2.1: Share of Short-term Credit in Total Agriculture Credit


100.00
90.00
80.00

Coop banks

70.00

RRBs

60.00

CBs

50.00

Others

40.00

Total

30.00
20.00
10.00
0.00

1998- 1999- 2000- 2001- 2002- 2003- 2004- 2005- 2006- 2007- 20081999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Years

At the institutional level, in case of RRBs, major share is of short-term credit and it
has continuously increased since 1998-99 from 69.51 percent to 85.19 percent with aberration
in 2006-07 when it declined from the previous year. This means that RRBs

have observed a continuous decline over the year in investment credit, though in
absolute terms long-term credit has grown at a rate of 20.14 percent (table 2.19).
Table 2.19: Growth Rate of Flow of Credit to Agriculture Sector (%) by Institutions
ST (Prod.)
Coop banks
RRBs
CBs
Total
Per ha. credit
1998-99/2002-03
Coop banks
RRBs
CBs
Total
Per ha. credit
2003-04/ 2008-09
Coop banks
RRBs
CBs
Total
Per ha. credit

CGR %
11.92
29.30
30.72
55.40
24.86

MT/LT
Coop banks
RRBs
CBs
Total

CGR %
-2.12
20.14
23.92
20.30
23.91

Total
Coop banks
RRBs
CBs
Total

CGR %
9.92
27.31
27.95
22.52
24.66

12.13
28.37
22.10
17.66
19.95

Coop banks
RRBs
CBs
Total

6.62
15.67
18.35
15.60
17.65

Coop banks
RRBs
CBs
Total

11.07
25.00
20.24
16.62
19.01

7.64
24.67
35.73
25.38
34.63

Coop banks
RRBs
CBs
Total

-10.03
17.26
12.28
10.60
21.66

Coop banks
RRBs
CBs
Total

5.57
23.36
25.27
20.36
30.35

Source: computed from table 2.18.

Total agriculture credit from RRBs grew at 27.31 percent during this period. In case
of commercial banks, the share of short-term loans had declined from 52.17 percent in
1998-99 to 47.29 percent in 2000-01 to rise for two years to dip again continuously
during next three years. It started rising again since 2004-05 to peak at
63.63 percent share in 2008-09. Short-term commercial bank credit flow to agriculture grew
at a rate of 30.72 percent when long-term credit grew at slower rate of 23.92 percent. Total
agriculture credit from commercial banks grew at 27.95 percent during this period. In case of
cooperative banks, the share of short-term credit flow was 78.85 percent in 1998-99 and it
fluctuated during next three years to continuously rise since then to touch 92.75 percent in
2007-08. It marginally fell in the next year. The annual growth in short-term agriculture credit
between 1998-99 and 2008-09 is 11.92 percent. However, investment credit has observed a
negative growth rate of 2.12 percent. Total agriculture credit from cooperative banks grew at
9.92 percent during this period.

It is also noticed that since 1998-99, formal sector

institutions have observed slower growth in investment credit and increasingly commercial
banks are meeting the demand for investment credit. Also, annual growth rates for shortterm, long-term and total credit

are the highest in case of commercial banks followed by RRBs and then cooperative banks
(figure 2.2). Besides, growth in investment agriculture credit has been lower than crop loans
across institutions.
Figure 2.2: Share of Long-term Credit in Total Agriculture Credit
90.00
80.00
70.00

Coop banks

60.00

RRBs

50.00

CBs

40.00

Others

30.00

Total

20.00
10.00
0.00

1998- 1999- 2000- 2001- 2002- 2003- 2004- 2005- 2006- 2007- 20081999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Years

Figure 2.3: Per Hectare Credit (Rs.)


14000
12000
10000
ST loans

8000

MT/LT loans

6000

Total Loans

4000

2000
0

1999- 2000- 2001- 2002- 2003- 2004- 2005- 2006- 200719981999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Years

Table 2.18 also shows that credit per hectare has continuously increased since
1998-99. It has grown at a rate of 24.66 percent during 1998-99 and 2008-09. However, crop
credit per hectare has grown marginally at a higher rate than investment credit per hectare. Per
hectare crop loan grew at a higher rate during 2003-04 and 2008-09 compared to 1998-99/
2002-03 period. Investment credit per hectare also witnessed a similar growth pattern, though
observed a lower growth than crop loans in both the periods (figure 2.3).
Table 2.18 shows that the period prior to doubling of credit programme had higher
growth of crop loans in case of cooperatives and RRBs while lower in case of commercial
banks and total credit. This means that doubling of credit programme was more dependent on
commercial banks compared to other institutions. In case of co- operatives, the investment
credit, grew at 6.62 percent during 1998-99 and 2002-03 and growth became significantly
negative during 2003-04 and 2008-09. In case of RRBs, the growth rate improved in the latter
period (2003-04 and 2008-09) compared to earlier period (1998-99 and 2002-03), a 1.59
percentage point improvement. However, commercial banks observed a significantly lower
growth in investment credit in the latter period (2003-04 and 2008-09) compared to earlier
period (1998-99 and 200203); a decline of 6.07 percentage points.
It is also seen from table 2.18 that contribution of cooperative banks in
agriculture crop loans was 52.35 percent in 1998-99, which continuously declined to touch
19.86 percent in 2008-09. On the other hand, contribution of RRBs improved continuously
from 7.15 percent in 1998-99 to 13.52 percent in 2004-2005 to decline continuously till
2007-08 to 11.29 percent. It improved in the next year to 11.87 percent. In the case of
commercial banks, the contribution in crop loans significantly improved from 40.25 percent
in 1998-99 to 68.28 percent in 2008-09. Thus, the gap created by cooperative sector has been
filled by commercial banks in provisioning of crop loans. In the case of medium and longterm loans, cooperative banks contribution reduced from 25.90 percent in 1998-99 to 13.23
percent in 2003-04, it is almost halved. It fell to 7.95 percent in 2004-05 and in 2008-09
stood at 4.52 percent. On the other hand contribution of RRBs to investment loans has
remained more or less stable though fluctuating over the years. The contribution of
commercial banks to investment credit

has been high at 68.08 percent in 1998-99 and it peaked in 2006-07 at 91.58 percent. In
2008-09, the share of commercial banks was 89.81 percent. This shows that currently
investment credit is mainly coming from commercial banks.

However, growth in total investment credit witnessed a slower growth in the latter
period, 5.0-percentage point decline. In case of total agriculture credit (crop plus investment),
the growth rates are lower during the 2003-04/2008-09 in comparison to
1998-99/2002-03 for cooperative banks and RRBs, though improved in case of commercial
banks. Overall total credit flow grew at higher rate during the latter period compared to earlier
period. This does point to positive impact of doubling of credit programme though interinstitutional differences are wide. However, long-term credit suffered during doubling of
credit programme. This is despite the fact that government implemented STCCS (short-term
rural cooperative credit structure) at the end March
2006. Decline in investment credit is serious matter of concern as this occurred when the
share of agriculture credit in total credit also declined (until last few years). The decline is all
the more disturbing because the share of overall medium and long-term loans in the portfolio
of banks increased sharply in recent years.
The

deceleration

in

the

growth

of long-term

loans impairs agricultural

borrowers credit absorption capacity, which would eventually affect the growth of crop loans
as well. The flow of investment credit to agriculture is constrained by high transaction costs,
structural deficiencies in the rural credit delivery system, issues relating to credit worthiness,
lack of collaterals in view of low asset base of farmers, low volume of loans with associated
higher risks and high manpower requirements and so on. Banks are more interested in
extending short-term credit as it bears low credit risks, entails lower supervision and
monitoring costs, and facilitates asset liability management. As the decline in the share of
long-term credit to agriculture could have serious implications for investment in agriculture, it
is necessary that banks gradually increase the share of medium and long-term funding to
agriculture. Thus, one can say that though the overall flow of institutional credit increased
over the years, still substantial gaps persist in rural financial markets. These gaps relate to
scarce provision of formal agricultural credit to small farmers and perhaps the inadequate
medium and long-term lending.

2.4.4. Sector- wise Deployment of Credit


The sub sector- wise deployment of credit for agriculture and allied activities over the period
1999-00 to 2008-09 revealed that crop loans and investment credit increased at an annual
growth rate of 26.43 and 23.86 percent when total credit flow to agriculture and allied
activities grew at a rate of 25.64 percent (table 2.20).
Table 2.20: Sector- wise Deployment of Credit for Agriculture and Allied Activities (Rs.
Cr.)
199900

Crop Loan
Term Loans
Minor Irrigation
Land
Development
Farm
Management
Plantation
&
Horticulture
Animal
Husbandry
Fisheries
Hi-tech
Agriculture
Others
Total
Crop Loan
Term Loans
Minor Irrigation
Land
Development
Farm
Management
Plantation
&
Horticulture
Animal
Husbandry
Fisheries
Hi-tech
Agriculture
Others
Total

200001

200102

200203

200304

2004-05

2005-06

2006-07

2007-08

2008-09

28965
17303
2345

33314
19513
1820

40509
21536
1845

45586
23974
1976

54977
32004
2730

76062
49247
4186

105350
75136
8663

138455
90945
8566

181393
73265
2840

210461
91447
3180

318

290

307

393

579

840

1749

2285

2553

2887

3889

4125

3847

3600

3986

4555

9695

10113

8303

8334

777

755

765

1195

1436

1720

4481

5266

5910

6045

2118
404

2188
318

2221
508

2637
539

2928
1142

3097
1301

7341
1019

8045
1424

9034
1248

10398
1281

1360
6092
46268
62.60
37.40

2088
7929
52827
63.06
36.94

2257
9786
62045
65.29
34.71

2268
11366
69560
65.53
34.47

4017
15186
86981
63.21
36.79

6648
26900
125309
60.70
39.30

9737
32451
180486
58.37
41.63

21498
33748
229400
60.36
39.64

33325
10052
254658
71.23
28.77

41694
17628
301908
69.71
30.29

13.55

9.33

8.57

8.24

8.53

8.50

11.53

9.42

3.88

3.48

1.84

1.49

1.43

1.64

1.81

1.71

2.33

2.51

3.48

3.16

22.48

21.14

17.86

15.02

12.45

9.25

12.90

11.12

11.33

9.11

4.49

3.87

3.55

4.98

4.49

3.49

5.96

5.79

8.07

6.61

12.24
2.33

11.21
1.63

10.31
2.36

11.00
2.25

9.15
3.57

6.29
2.64

9.77
1.36

8.85
1.57

12.33
1.70

11.37
1.40

7.86
35.21

10.70
40.63

10.48
45.44

9.46
47.41

12.55
47.45

13.50
54.62

12.96
43.19

23.64
37.11

45.49
13.72

45.59
19.28

100

100

100

100

100

100

100

100

100

100

Source: NABARD, Annual Reports, various years.

The corresponding growth rates for the period 1999-00 to 2003-04 stood at 17.3
percent, 15.4 percent and 16.6 percent. This shift in growth pattern in latter years is due to
doubling of credit effort initiated on June 18, 2004; the package envisaged 30 percent growth
in credit flow to agriculture during 2004-05 over the previous year and
doubling it over a period of 3 years 19. The growth rates for the period 2004-05 to 2008-

09 stood at 29.42 percent, 12.89 percent and 23.40 percent while during 1999-00 and
2003-04 were 17.30 percent, 15.44 percent and 16.62 percent respectively (table 2.21).
Table 2.21: Growth rates by Sectors of Deployment of Credit for Agriculture and Allied
Activities, (%)
Activities
Crop Loan (ST-Production
Credit)
Term Loans (MT/LT
Investment Credit)
Minor Irrigation
Land Development
Farm Management
Plantation & Horticulture
Animal Husbandry
Fisheries
Hi-tech Agriculture
Others
Total

1999-00/ 200809

2004-05/ 200809

1999-00/ 200304

26.43

29.42

17.30

23.86

12.89

15.44

11.79
35.37
12.68
32.68
22.74
17.89
49.49
13.66
25.64

-15.34
32.94
11.11
32.19
30.08
1.73
63.27
-18.27
23.40

3.94
16.21
-0.86
18.38
8.70
29.77
25.22
24.44
16.62

Source: computed from table 2.20.

Under investment credit, sectors like plantation and horticulture, land development,
fisheries and hi-tech agriculture made significant gains. However, sectors like minor irrigation
and farm mechanization, which together accounted for a sizeable share in investment credit
(36 percent in 1999-00) have grown at a much lesser rate and lost significant ground in
later years (21 percent in 2003-04 and 12.59 percent in
2008-09). However, share of hi-tech agriculture in investment credit increased remarkably
(7.86 percent in 1999-2000 to 12.55 percent in 2003-04 and then to 45.59 percent in 200809).
The investment credit showed a lower growth rate during 2004-05 to 2008-09
compared to the period 1999-00 to 2003-04 when crop production credit observed significant
improvement. Among investment loan sector, minor irrigation not only witnessed decline in
growth rate of credit flow, it became negative during 2004-05 and
2008-09 while land development growth rate almost doubled in the latter period
though percentage share is very small. Credit flow to farm management grew at a much rate
in the latter period compared the earlier period. Investment credit for plantation and
horticulture sector observed a growth rate of 32.19 percent during 2004-05

compared to 18.38 percent during 1999-00 and 2003-04. The investment credit flow to animal
husbandry sector observed a significant growth during 2004-05 and 2008-09 when fisheries
sector did not get any attention as during 2004-05 and 2008-09, the credit flow grew at a rate
of just 1.73 percent compared to 29.77 percent during 199900 and 2003-04. Hi-tech agriculture investment observed a significant growth of 63.27
percent during 2004-05 and 2008-09; it was 25.22 percent during 1999-00 and 200304. Thus, two observations can be made here: (i) doubling of credit flow strategy failed to
boost investment credit and (ii) even within investment sector, bankers concentrated on hitech agriculture which required high investment levels. Irrigation sector was total neglected
which could have implications for crop production.
2.4.5. NPA and Agriculture
It is often said that banks have high non-performing assets because of bad debts in
agriculture. The Agriculture Debt Waiver and Debt Relief Scheme 2008 is also ascribed a
blame. Table 2.22 provide information on non-performing assets of public sector banks and
private sector banks as on end March 2004. Public sector banks as on March end
2009 had NPA of Rs.44042.0 crore. Of this, 55.22 percent is due to priority sector, 1.08
percent is due to public sector and the remaining 43.7 percent is due to non-priority sector.
The contribution of agriculture sector to this NPA is 12.96 percent when small- scale
industries contributed 15.86 percent and others 26.40 percent.
Table 2.22: Sector wise NPA (Rs. crore)
Sector

Public Sector Banks

Old Private Sector


Banks
2007-08 2008-09
1338
1233
0.7
0.5
243
263
0.1
0.1
359
307
0.2
0.1
737
663
0.4
0.3

2007-08 2008-09
25287
24318
Priority Sector
0.8
0.7
8268
5708
Agriculture
0.3
0.2
5805
6984
SSI
0.2
0.2
11214
11626
Others
0.4
0.3
Public Sector
299
474
Non-priority
14163
19251
1219
1839
Sector
0.5
0.5
0.6
0.8
39749
44042
2557
3072
Total
1.3
1.2
1.3
1.3
Note: Second row is % to total assets of the bank group.
Source: RBI (2010),

New Private Sector


Banks
2007-08 2008-09
2080
2407
0.3
0.3
1225
1178
0.2
0.2
292

363

563
0.1

866
0.1
75
11334
1.4
13815
1.7

8339
1.1
10419
1.4

All SCBs
2007-08
28705
0.7
9735
0.2
6456
0.2
12514
0.3
299
23721
0.6
52725
1.2

2008-09
27958
0.5
7149
0.1
7654
0.2
13155
0.3
549
32423
0.6
30930
1.2

Even within the priority sector, the share of agriculture sector is the lowest
(23.47 percent). In case of private sector banks, both old and new, the total NPA stood at
Rs.16887 crore and priority sector contributed 21.56 percent and the non-priority sector
another 78.44 percent. The contribution of agriculture sector is mere 8.53 percent while
small-scale industries contribute another 3.97 percent and others contribute 9.05 percent. This
shows that agriculture is not the main culprit for NPAs of public sector banks and though it is
contributing a higher share than small industry in case of private sector banks. Private sector
banks have a lower priority sector lending to agriculture. This data also shows that non-priority
sector is mainly responsible for NPA of private sector banks.
2.5. Innovations in Credit Delivery
Few innovations viz., micro-finance, Kisan Credit Card (KCC) scheme, joint liability groups
and farmers clubs have emerged as significant policy developments geared to address the
problems associated with distributional aspects of agriculture credit recently.
2.5.1. KCC Scheme
KCC scheme was introduced in August 1998 for short-term loans for seasonal agricultural
operations (SAO). The KCC is the most effective mode of credit delivery to agriculture in
terms of the timeliness, hassle-free operations as also adequacy of credit with minimum of
transaction costs and documentation. It has helped in augmenting GLC flow of production
credit for agriculture. It is not to say that problems have not emerged with KCCs 20. By end
March 2010, 9.06 crore KCCs were issued (table 2.23).
The commercial banks had a major share of 41.66 percent followed by cooperative
banks with 43.91 percent share and RRBs with share of 14.43 percent. The performance of
cooperative sector in issuing KCCs was on top till 2003-04 but commercial banks achieved the
top position thereafter. Regional Rural Banks have played a limited role in issuance of KCCs.
Growth in KCC issuance in case of cooperative sector is 1.30 percent during 1998-99 and
2009-10 while it is 14.17 percent in case of
commercial banks and a high of 37.53 percent. At the aggregate level, the growth rate is

9.64 percent. The cooperative sector sanctioned Rs.826 crore in 1998-99 and it touched a
high of Rs20492 crore in 2007-08 to go down to Rs.7005 crore in 2009-10; a growing at rate
of 15.68 percent. In case of commercial banks the amount sanctioned in 1998-99 was
Rs.1473 crore that peaked in 2006-07 at Rs.26215 crore and stood at Rs.19746 crore in

2009-10; growing at 25.50 percent during the period. In case of RRBs, the growth in amount
sanctioned is 52.94 percent but volume of amount is much lower than other institutions.
At the aggregate level, 7.83 lakh KCCs in 1998-99 has sanctioned Rs.2310 crore which grew
to Rs.34982 crore in 2009-10 observing a growth of 23.03 percent (figure 2.4).
Table 2.23: KCC by Agency (No. lakh and amount in Rs. crore)
Year
1998-99
1999-00
2000-01
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
2009-10
Total
Share in Total %
CGR %

Coop

Amount
sanctioned

1.55
35.95
56.14
54.36
45.79
48.78
35.56
25.98
22.98
20.91
13.44
16.15
377.59
41.66
1.30

826
3606
8412
15952
15841
9855
15597
20339
13141
20492
13172
7005
145238
15.68

RRBs
0.06
1.73
6.48
8.34
9.64
12.73
17.29
12.49
14.06
17.73
14.14
16.08
130.77
14.43
37.53

Amount
sanctio
ned
11
405
1400
2382
2955
2599
3833
8483
7373
9074
7632
8231
54378
52.94

Commercia
l Banks
6.22
13.66
23.90
30.71
27.00
30.94
43.96
41.65
48.08
46.06
58.34
27.47
397.99
43.91
14.17

Amount
sanctio
ned
1473
3537
5615
7524
7481
9331
14756
18779
26215
20421
25865
19746
160743
25.50

Total
7.83
51.34
86.52
93.41
82.43
92.45
96.81
80.12
85.12
84.70
85.92
59.70
906.35
100
9.64

Source: RBI, Report on Trend and Progress of Banking in India, various issues.

Table 2.24: Average Amount Sanctioned per KCC (Rs.)


Year
1998-99
1999-00
2000-01
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
2009-10
Total

Coop

RRBs

53290
10031
14984
29345
34595
20203
43861
78287
57185
98001
98006
43375
38464

18333
23410
21605
28561
30654
20416
22169
67918
52440
51179
53975
51188
41583

Source: computed from table 2.23.

Commercial
Banks
23682
25893
23494
24500
27707
30158
33567
45088
54524
44336
44335
71882
40389

Total
29502
14702
18986
27682
31878
23564
35312
59412
54898
59017
54317
58596
39759

Amount
sanction
ed
2310
7548
16427
25858
26277
21785
34186
47601
46729
49987
46669
34982
360359
23.03

Figure 2.4: Amount Sanctioned by KCCs


Average Amount Sanctioned for KCCs by Institutions
120000
100000

Amount Rs.

80000

Cooperatives
RRBs

60000

SCBs
Total

40000

20000
0
1998- 1999- 2000- 2001- 2002- 2003- 2004- 2005- 2006- 2007- 2008- 200999
00
01
02
03
04
05
06
07
08
09
10
Years

Table 2.24 shows that till the end of June 2010, 377.59 lakh cooperative sector KCCs
sanctioned amount of Rs.38464 on an average while in case of commercial banks the average
amount was Rs.40389 for 397.99 lakh KCCs and RRBs Rs.41583 for 130.77 lakh KCCs. At
the aggregate level, for total of 906.35 lakh KCCs the average amount sanctioned stood at
Rs.39759. Thus, commercial banks on an average provided higher credit through KCCs.
RBBs and cooperative banks follow it.
However, farmers tend to access the credit limit either in 2-3 pre-determined
instalments fixed by the financing bank, or all at once- banks appeared to continue to
perceive these as normal agricultural credit loans with amounts to be drawn at different times,
for different phases of farming operations, or for different crops. Similarly, farmers
appeared to withdraw the entire amount at once either because they were required to do so
by the bank, or because the loans were cheap, given the various interest reducing
schemes. Also farmers did not realize that they were covered by KCC and this may have
been due to the fact that the KCC was, in fact, not a card, but a

passbook, and farmers had such passbooks even prior to KCC issuance 21. This means that
KCC scheme is not being operated in accordance with the purpose for which it was first
conceived.
Across states different agencies have played a different role. For instance, in Haryana,
Jammu & Kashmir, Rajasthan, Andaman & Nicobar Islands, Orissa, Maharashtra,
Chhattisgarh, Madhya Pradesh and Uttarakhand cooperative banks have more than 50 percent
share, while in other states commercial banks dominate. State- wise analysis of KCC issued
as at end of June 2009 reveals that southern region tops with 33.55 percent share in all
KCC issued (table 2.25).

Table 2.25: KCC by Agency and State (end June 2009)


States
Chandigarh
Delhi
Haryana
Himachal
Pradesh
Jammu &
Kashmir
Punjab
Rajasthan
Northen
region
Arunachal
Pradesh
Assam
Manipur
Meghalaya
Mizoram
Nagaland
Sikkim
Tripura
North
eastern
region
Andhra
Pradesh
Karnataka
Kerala
Pondicherry
Tamil Nadu
Lakshadweep
Southern
region
A&N Islands
Bihar
Jharkhand
Orissa
West Bengal
Eastern
region

2125
1248953

Institutions
RRBs
CBs
2949
19523
338049
737132

Total
2949
21648
2324134

Institution share %
Coop.
RRBs
CBs
100
9.82
0.00
90.18
53.74
14.55
31.72

0.01
3.42

Distribution %
RRBs
CBs
0.01
0.06
2.89
2.10

136915

44185

202899

383999

35.66

11.51

52.84

0.38

0.38

0.58

0.46

52395

15819

10442

78656

66.61

20.11

13.28

0.14

0.14

0.03

0.09

895513
2852965

126581
446243

1180356
1402120

2202450
4701328

40.66
60.68

5.75
9.49

53.59
29.82

2.46
7.82

1.08
3.82

3.37
4.00

2.65
5.65

5188866

970877

3555421

9715164

53.41

9.99

36.60

14.23

8.31

10.14

11.67

980

2521

14240

17741

5.52

14.21

80.27

0.00

0.02

0.04

0.02

13034
13495
9905
2108
2137
2777
3612

128115
1957
20891
9460
1370

434998
37606
65605
22891
21389
8733
93822

3.00
35.89
15.10
9.21
9.99
31.80
3.85

29.45
5.20
31.84
41.33
6.41
0.00
44.12

67.55
58.91
53.06
49.46
83.60
68.20
52.03

0.04
0.04
0.03
0.01
0.01
0.01
0.01

1.10
0.02
0.18
0.08
0.01

41393

293849
22154
34809
11323
17882
5956
48817

0.35

0.84
0.06
0.10
0.03
0.05
0.02
0.14

0.52
0.05
0.08
0.03
0.03
0.01
0.11

48048

205707

449030

702785

6.84

29.27

63.89

0.13

1.76

1.28

0.84

3594385

1873530

8589685

14057600

25.57

13.33

61.10

9.85

16.03

24.50

16.89

1700759
1375260
7169
1802983

1109208
450598

2204237
1335541
45221
3549279
615

5014204
3161399
52390
5633327
615

33.92
43.50
13.68
32.01

22.12
14.25
0.00
4.99

43.96
42.25
86.32
63.01
100

4.66
3.77
0.02
4.94

9.49
3.86
0.00
2.41

6.29
3.81
0.13
10.12

6.02
3.80
0.06
6.77
0.00

8480556

3714401

15724578

27919535

30.37

13.30

56.32

23.25

31.78

44.84

33.55

3441
795942
278892
3330289
1470686

839014
299642
610687
325277

2028
1333173
383215
1016529
1222451

5469
2968129
961749
4957505
3018414

62.92
26.82
29.00
67.18
48.72

0.00
28.27
31.16
12.32
10.78

37.08
44.92
39.85
20.50
40.50

0.01
2.18
0.76
9.13
4.03

7.18
2.56
5.23
2.78

0.01
3.80
1.09
2.90
3.49

0.01
3.57
1.16
5.96
3.63

5879250

2074620

3957396

11911266

49.36

17.42

33.22

16.12

17.75

11.29

14.31

Coop.

281065

Coop.

Total
0.03
2.79

Ministry of Agriculture (2010), Report of the Task Force on Credit Related Issues of Farmers, (Chairman: Mr.
Umesh
Chander Sarangi), June.
21

States

Coop.

Damn &Diu
Goa
Gujarat
Maharashtra
D&N Haveli
Western
region
Chhattisgarh
Madhya
Pradesh
Uttar
Pradesh
Uttarakhand
Central
region
Other states
India

4081
1183234
5216828

Institutions
RRBs
CBs
1765
10782
245535
1348567
284157
2319716
3163

Total
1765
14863
2777336
7820701
3163

Institution share %
Coop.
RRBs
CBs
100
27.46
0.00
72.54
42.60
8.84
48.56
66.71
3.63
29.66
0.00
0.00
100

Coop.
0.01
3.24
14.30

Distribution %
RRBs
CBs
0.01
0.00
0.03
2.10
3.85
2.43
6.62
0.01

Total
0.00
0.02
3.34
9.40
0.00

6404143

529692

3683993

10617828

60.32

4.99

34.70

17.56

4.533

10.51

12.76

930637

266592

252245

1449474

64.21

18.39

17.40

2.55

2.28

0.72

1.74

3154342

498529

1475749

5128620

61.50

9.72

28.77

8.65

4.27

4.21

6.16

6090372

3380399

5721361

15192132

40.09

22.25

37.66

16.70

28.93

16.32

18.25

297840

45462

246185

589487

50.53

7.71

41.76

0.82

0.39

0.70

0.71

10473191

4190982

7695540

22359713

46.84

18.74

34.42

28.71

35.86

21.95

26.87

36474054

11686279

47
35066005

47
83226338

43.83

14.04

100
42.13

100

100

0.00
100

0.00
100

Source: Credit Division, Ministry of Agriculture, New Delhi.

It is followed by Central region (26.87%), eastern region (14.31%), western region


(12.76%) and northern region (11.67%). The share of north- eastern region is below one
percent. This shows that even intervention like KCC has not given fillip to better coverage in
the north- eastern region and even the green revolution region of north is lagging behind.
Across states, Uttar Pradesh tops with 18.25 percent share in all KCCs issued. Andhra
Pradesh (16.89%), Maharashtra (9.4%), Madhya Pradesh (6.16%), Tamil nadu (6.77%) and
Karnataka (6.02%) followed it. Thus, these top six states account for 63.49 percent of all
KCCs issued by end March 2009. Other states that have significant share in KCCs are
Rajasthan (5.65%) and Orissa (5.96%) or top 8 states account for 75.1 percent of KCCs.
Thus, there is lop- sided issuance of KCCs. These states account for 65 percent of all
operational holdings.
Top six states with KCCs issued by institution are:
Cooperative Banks:

Uttar Pradesh (16.7%), Maharashtra (14.3%), Andhra Pradesh


(9.85%), Orissa (9.13%), Madhya Pradesh (8.85%) and Rajasthan
(7.82%) (Total 66.65%)

RRBs:

Uttar Pradesh (28.93%), Andhra Pradesh (16.03%), Karnataka


(9.49%), Bihar (7.18%), Orissa (5.23%) and Madhya Pradesh
(4.27%) (Total 71.13%)

Commercial Banks:

Andhra Pradesh (24.5%), Uttar Pradesh (16.32%), Tamil Nadu


(10.12%), Maharashtra (6.62%), Karnataka (6.29%) and Madhya
Pradesh (4.21%) (Total 68.06%)

Also, cooperative institutions have issued KCCs of more than 60 percent in J&K,
Rajasthan, A&N Islands, Orissa, Maharashtra, Chhattisgarh and Madhya Pradesh while in
case of RRBs, more than 30 percent share in KCCs issued within the state include
Meghalaya, Mizoram, Tripura and Jharkhand. In case of commercial banks more than 60
percent share in KCCs issued within the state include Delhi, Arunachal Pradesh, Assam,
Nagaland, Andhra Pradesh, Pondicherry, Tamil Nadu, Lakshadweep, Goa, D&N Haveli
and Daman & Diu. Thus, importance of credit institutions varies across states. Commercial
banks dominate only in two major states viz., Tamil Nadu and Andhra Pradesh while
cooperative banks are significant in large number of states.
Initially, term loan was kept outside the purview of KCC scheme, which latter
was included in the scope. The in-house studies of NABARD revealed that KCC is
meeting credit requirements of cultivation of crops for the whole year and also assuring
availability of credit to the farmer whenever the credit is needed. KCC scheme has
helped in making available adequate quantum of credit to the farmers; it provides flexibility
to the farmer to draw cash from a branch other than issuing branch and to buy inputs from
any supplier of his choice. There is reduction in quantum of interest to the farmer due to
frequent drawl and repayment of loans. The transaction cost of the farmer for the loan from
the bank is reduced. Besides, KCC provides insurance cover at a very low premium rate.
However, banks are adopting cautious approach in extending facility to only those
beneficiaries with good past track record.
Some banks are not issuing cards to illiterate, rainfed and tenant farmers. Monocropping areas are also being excluded and there is insistence of opening of saving bank
accounts before KCC is issued. Disbursement of kind component also in cash under KCC is
perceived by cooperatives as a possible threat to the existing cooperative marketing structure
of selling agri-inputs. As cash disbursement is done only at the DCCB branch level in some
states, borrowers are required to travel long distances for drawl of cash from branches of
DCCBs. Some banks still have apprehension that transaction cost and workload would
increase and additional staff strength would be required at DCCB level. There is lack of
uniform accounting procedure both at PACS as well as DCCB level.

In some states, commercial banks/RRBs are levying costly service charges for loans
of KC cards to farmers (Rs.100 to Rs.300). RRBs are charging 2 percent commission
in case of withdrawal from designated branches other than issuing branch. Besides, some
states are levying stamp duty for loans under KCC and not for normal crop loans. Few
banks have fixed minimum land holding as eligibility criteria for issue of KCC. Banks debit
interest rate at half-yearly or quarterly basis amounting to compounding of interest under
KCC accounts. Earlier, kharif and rabi loans were sanctioned separately and interest rates
fixed on slab basis (up to Rs.25000 and above Rs.25000 and up to Rs.2 lakh etc), but after
introduction of KCC, interest is charged at higher rate than earlier. Banks are still fixing the
due dates for repayment of loans on the old pattern of lending. Over and above this, some
banks are also insisting on land mortgage even for small loans and collateral securities in the
shape of fixed deposit receipts, etc., before sanctioning the limit.
The NCAER study revealed that KCC scheme has led to increase in the flow of credit
to the agriculture sector, a substantial reduction in borrowings from the informal sector for
short term credit needs, a significant saving in time spent on availing short term agricultural
loans and an overall reduction in cost of credit delivery 22. Studies conducted by NABARD
showed that fixation of lower limits, inadequate scale of finance, treating KCC as term loan
facility rather than as a cash credit facility, charging higher premium from borrowing under
personal accident insurance scheme (PAIS), etc were some of the adverse features observed 23.
It is also reported that the management information system (MIS) for monitoring the progress
of the scheme is fraught with shortcomings viz., (i) more than one family member having
the same operational holding has been issued KCC, (ii) the same person has been issued
multiple KCC by various banks, (iii) in certain case, KCC lapsed after a period of three years,
but such cards were still counted as active cards in the MIS and (iv) in certain cases, cards
were
renewed after a period of three years, but such cards were shown to be freshly issued 24.

Table 2.26: Coverage of KCC


States

No.
of
operational
holdings
(lakh)115.32
70.65
65.75
251.72
27.12

No.
of Cards
Issued
(lakh)
144.32
49.78
30.54
224.64
4.81

% operational
holdings
covered
under KCC
125.15
70.46
46.45
89.24
17.74

Active
KCC
after
adjusting for
errors (lakh)
74.26
44.56
28.44
147.26
3.64

Estimated
operational
holdings
covered
under active KCC
(lakh)
64.39
63.07
43.25
58.50
13.42

AP
Karnataka
Kerala
Southern Region
Assam
North
eastern
region
27.12
4.81
17.74
3.64
13.42
Punjab
9.97
22.3
223.67
7.73
77.53
Haryana
15.28
23.48
153.66
11.34
74.21
Himachal
Pradesh
9.14
3.25
35.56
2.64
28.88
Uttar Pradesh
216.68
154.23
71.18
76.89
35.49
Northern region
251.07
203.26
80.96
98.60
39.27
Gujarat
42.39
28.01
66.08
20.54
48.45
Maharashtra
121.04
78.12
64.54
70.34
58.11
Western region
163.43
106.13
64.94
90.88
55.61
Madhya Pradesh
73.56
50.68
68.90
42.57
57.87
Rajasthan
58.19
47.57
81.75
37.77
64.91
Central region
131.75
98.25
74.57
80.34
60.98
Orissa
40.67
49.34
121.32
24.87
61.15
West Bengal
67.90
31.08
45.77
27.09
39.90
Eastern region
108.57
80.42
74.07
51.96
47.86
Total
933.66
717.51
76.85
472.68
50.63
Source: Samir Samantra (2010), Kisan Credit Card: A Study, Occasional paper No. 52, NABARD, Mumbai.

Table 2.26 shows that after adjusting for such errors, KCCs number goes down
472.68 lakh, which constituted 50.63 percent of the operational holdings. The states with
highest coverage of KCC (ratio of number of cards to operational holdings) were Punjab
(77.53%), Haryana (74.21%), and the lowest were Himachal Pradesh (28%), and Assam
(13.42%). This shows that MIS revamping is required.
2.5.2. Micro-finance and Agriculture
In Asia, group lending for agriculture is still in early stages despite the fact that micro- credit
programmes have been successful. Internationally, a variety of experiments are in operation
with BancoSol being very important one. In transition economies since 1994 programmes are
in operation and there is no dearth of evaluations of micro-finance interventions the world
over

but

not

many

have

addressed

issues

concerning agriculture. There is the

emergence of fresh thinking developing that micro-finance has to go beyond group lending
and the case is cited of Eastern Europe, Russia and China.

The most tried model of agriculture lending appears to be value chain model where farmers
are one cog in the wheel, have not been really successful 25. There are limitations of
both the state-only and market-only models. The current international context has made
agriculture a primary global concern. Agricultural prices and population pressure are
increasing, and food security is no longer ensured. In this light, the primary challenge is to
meet their food security needs by relying on small producers: but under what conditions
can rural populations meet this increasing demand? However, to benefit from it, they need to
be able to invest and increase production. This implies access to appropriate forms of credit
and insurance and other income stabilizing incentives. The governments must, therefore,
support agriculture finance.
Despite the many micro-finance initiatives aimed at reducing exclusion from financial
services, problem of financing agriculture remains central. The micro finance sector has
developed rapidly over the last two decades, making credit available for many poor
micro-entrepreneurs, although in most cases it has practically skipped the rural poor and most
particularly their agricultural activities as smallholders 26. Three- fourth of the people lives in
rural areas and for livelihood, directly or indirectly, largely depends up on agriculture and
allied activities. Between 60-99 percent of rural households earn a living from farming and
for most, it is rarely the only source of income. Most of these individuals also earn wages
either in the agricultural sector or other sectors, are self-employed, or receive money from
family members who migrate to cities. Family farming is characterized by low productivity
due in particular to low levels of investment in inputs or in equipment. But such investments
require access to financial sources in the form of short, medium or long- term loans. But
farm families with low monetary incomes find it difficult to qualify for loans. These are
significant obstacles for the development of financial services that are accessible and
adapted to a
population which is poor in monetary forms, whose survival is dependent on a number

of exogenous factors, like climate, crop disease, or price movements, and the like. Access to
finance is therefore decisive. Yet the majority of farmers in developing countries are still
excluded from the banking system. One can say that there are broad four reasons for lack
of interest of financial institutions for agriculture finance 27: (i) many agricultural

households are located in remote areas of the country and often widely dispersed that
financial institutions find it challenging to provide cost-effective and affordable services;
(ii) big swaths of the agricultural population is subjected to the same weather and climate
risks, making it hard for providers of financial services to hedge risks or operate profitable
insurance pools; (iii) service providers, who are urban-based largely, simply do not know
enough about the business of agriculture to devise profitable financial products (India has
been an exception); and (iv) most small agricultural producers in developing countries
have poor education and little knowledge of how modern banking institutions work.
Besides, the agricultural sector is different from other economic sectors in a number of
ways 28. Activities are generally located in isolated areas with low population density and poor
infrastructure. They are dependent on weather and production cycles; monetary income is not
only limited but is also seasonal. Agricultural prices are notoriously volatile and few farmers
can offer guarantees that are legally or financial acceptable. The returns are also low. These
peculiarities demand financing mechanisms adapted to the diverse needs and services of rural
households. These needs include (i) Short-term: input financing at the beginning of the crop
year (seeds, fertilizers, pesticides), additional labour, feed, storage facilitates, processing, etc.;
(ii) Medium and long- term: equipment for intensification, commercialisation (transportation),
storage (buildings), perennial crops (investment, renewal, maintenance), (re) constitution of
herds, land purchase; (iii) Family needs: personal, durable goods, housing; (iv) Non- financial
services: monitoring demand, technical assistance and extension; and (v) Savings. Thus,
added challenges that further hinder the expansion of financial services for agriculture are
to understand how best these financial needs are met and to find
ways to mitigate the risks associated with them. Moreover, as micro-finance is

increasingly integrating into conventional financial markets, the sector has no choice but
to apply cost-covering interest rates 29. Such rates often contradict the expansion of rural
coverage

and agricultural finance

due

to the

low profitability of the

activities

financed 30. All these factors explain the relative lack of interest in agriculture on the part
of urban and peri-urban areas. Therefore, liberalized markets coupled with contractual
innovations-elements promoted under the new paradigm- have not fulfilled their promises
vis--vis rural and agricultural finance.

There is no doubt that micro-finance can play an important role in agricultural finance
in India and is capable of mitigating the many challenges associated with the sector. In other
to achieve this goal, a variety of conditions must be fulfilled viz., organization of the
agricultural sector; professionalism at all levels of the various actors; a supply of
diversified and well-adapted financial services; access to non- financial services that promote
agricultural development; MFI access to medium- and long-term refinancing, at affordable
rates; Diversification of regions and types of activities financed, keeping in mind the primary
objective of financing rural and agricultural sectors; and a regulatory framework adapted to
the challenges of agricultural and rural finance. These factors underlie the fact that meeting
the financial needs of farmers on a sustainable basis requires governments to support the
micro- finance sector. Among the areas identified for role of micro-finance include:
promoting agriculture; reducing post-harvest losses; extension services to agriculture;
input supply to agriculture; value chain in agricultural financing; approaches and strategies in
wholesaling and retailing of micro-credit to farmers; promotion of all year farming including
irrigation farming; and land acquisition for farming (fishing, poultry etc). Experience in the
field indicates that micro- finance can play a crucial role 31

where all round and

infrastructure development has taken place in rural areas due to private sector investments
(factories, mines, etc.), by government (roads, power, storage, public sector units), or by
market forces (trade centres/mandis, near crossroads where passenger vehicles ply regularly,
etc.); where significant increases in productivity in dry
land agriculture, in agricultural diversification and in the portfolio of rural livelihood

options, both on and off farm have occurred; where the risk of investment in agriculture by
the poor has been significantly lowered through insurance, irrigation and dry land agriculture
technology; where people have market linkages for agricultural and forest products; and
where the poor have been able to overcome oppressive relations, which deprive them of
access to resources, markets, equal opportunity, political power, confidence, management
skills and social status. Finally, it is not either or situation, rural sector require finance
and it has to be delivered to sustain communities and food security of countries like India.
2.5.3. Small Borrowal Accounts
The numbers of small borrowal accounts below Rs.25000, which can be treated as a proxy for
extensiveness of credit flow to priority sectors, declined at a rate of 3.62 percent during 199198, but has grown at the rate of 15.23 percent during 1975-90. For the entire period, the

growth rate was 9.69 percent. It appears that RBI and government view that the development
of financial markets is sufficient to take care of credit needs of agriculture and rural sector.
But financial markets fail the poor/ farmers because (i) no lender is willing or
permitted to pass on the extra costs associated with lending to customers, (ii) no
insurer is willing to compensate for borrowers and lenders risk aversion by offering
insurance against non-payment due to natural calamities; (iii) potential borrowers are
unwilling to borrow because of risk aversion, even if the expected value of their profits
outweighs the expected costs of their investment, and (iv) social and private values of costs
and benefits diverge because of externalities 32.
Table 2.27 reveals that since the 1990-91, the share of agriculture credit in total bank
credit declined from 15.0 percent to 9.6 percent continuously till 2000-01 to rise again to
touch 10.9 percent in 2003-04. The year before doubling of agricultural credit programmes
began. On the other hand, rural credit deposits ratio during the same period declined sharply
from 60 percent to 39 percent. It did begin to rise again thereafter to peak at 49.87 percent
in 2004-05. The two appear to have influence on
reduction in small borrowal accounts of below Rs.25000, 58.75 percent in 1990-91 and
.

38.73 percent in 2004-05. This does reflect on adverse impact of policy regime on flow of
credit to agriculture sector and the most vulnerable sector- marginal and small farmers.
Table 2.27: Share of Agriculture as % of Total Bank Credit

1990-91
1991-92
1992-93
1993-94
1994-95
1195-96
1996-97
1997-98
1998-99
1999-00
2000-01
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09

Share of agriculture as
% of total bank credit

Rural CD
ratio (%)

15.00
15.10
13.60
13.00
11.90
11.40
11.40
11.40
11.00
9.90
9.60
9.80
10.00
10.90
10.79

60.00
57.90
55.30
50.00
48.60
47.30
44.10
43.40
41.00
40.40
39.00
41.80
42.42
43.69
49.87

No. of small borrowal


accounts below
Rs.25000 (lakh)
587.5
625.4
585.2
558.1
539.1
519.0
473.2
468.3
427.4
392.7
372.5
373.2
368.7
367.8
387.3
384.2
386.1
383.0
392.1

Source: Reserve of India Bulletin, various issues.

As on March end 2008, agriculture small borrowals stood at 37.6 percent of all small
borrowals, a 1.5 percent increase over 2006 and almost all accounted for direct finance (table
2.28). In case of share in amount outstanding 38.2 percent was the share of agriculture
accounts. The increase over 2006 was 7.1 percentage points. The average amount outstanding
in 2008 was Rs.35568 against Rs. 27723 in 2006. It was observed that average outstanding
amount in case of agriculture is higher than average for all small borrowals. It may also be
pointed out here that the average is 6 times lower than the limit of Rs.2.00 lakh.
Over the last three decades from 1975 to 2008, small borrowal accounts are predominant in
number accounting for over 87 percent of all borrowal accounts even though the cut-off credit
limit for classification of small borrowal accounts has been revised upwards twice during this
period (table 2.29).

Table 2.28: Distribution of Small Borrowal Accounts by Occupation as on March 2008


Percent share
No. of Accounts
2006
2008
36.1
37.6

Occupations
Agriculture
Direct Finance
Indirect Finance
All small borrowal A/Cs

35.4
0.7
100

Percent share
Amount Outstanding
2007
2008
31.1
38.2

37.0
0.6
100

35.5
0.6
100

37.6
0.6
100

Average Amount Outstanding


per account (Rs.)
2006
2008
27723
35568
27746
26594
32221

35533
37951
34993

Source: Reserve Bank of India (2011), Survey of Small Borrowal Accounts, 2008, RBI Bulletin, May.

Table 2.29: Small Borrowal Accounts

Small Borrowal Accounts

Year End
June 1975
June 1976
June 1977
June 1978
June 1979
June 1980
June 1981
June 1982
June 1983
June 1984
June 1985
June 1986
June 1987
June 1988
June 1989
March 1990
March 1991
March 1992
March 1993
March 1994
March 1995
March 1996
March 1997
March 1998
March 1999
March 2000
March 2001
March 2002
March 2003
March 2004
March 2005
March 2006
March 2007
March 2008
CGR % 1975-2008
CGR % 1975-1983
CGR % 1984-1998
CGR % 1999-2008

Cut off for


small
borrowal
account Rs.
10000
10000
10000
10000
10000
10000
10000
10000
10000
25000
25000
25000
25000
25000
25000
25000
25000
25000
25000
25000
25000
25000
25000
25000
200000
200000
200000
200000
200000
200000
200000
200000
200000
200000

% share

No. of
A/Cs
(000)

Outstanding
amount
(Rs. crore)

Average
Outstanding
amount (Rs.)

No. of
A/Cs

5607
7674
10016
12137
14336
16832
19307
21877
23682
28211
32137
37143
41620
45886
49717
51180
58784
62548
58521
55810
53915
51905
50094
46828
50997
52856
50456
54130
56527
61900
71106
77122
84347
94132

831
1110
1393
1816
2336
2886
3553
4582
5089
8897
10028
12615
15444
17954
22330
24147
27323
29945
32091
32188
34060
36253
37446
41095
88282
102745
106294
125649
145057
162700
199880
248498
278895
329396

1482
1446
1391
1496
1629
1715
1840
2094
2149
3154
3120
3396
3711
3913
4491
4718
4648
4788
5484
5767
6317
6984
7475
8776
17311
19439
21067
23212
25662
26284
28110
32221
33065
34993

90.7
92.3
93.2
93.4
93.2
93.4
93.1
93.0
92.6
95.5
95.6
95.8
95.8
95.6
95.4
95.0
94.0
95.0
94.2
93.6
92.8
91.6
90.1
87.4
97.5
97.2
96.4
96.0
95.0
93.2
92.2
90.3
89.3
88.0

6.48
19.21
3.65
7.43

18.44
25.94
11.21
16.07

11.23
5.64
7.30
8.05

Outstanding
amount
9.2
9.5
10.4
11.4
12.2
13.5
14.3
15.5
14.5
20.5
20.1
22.4
24.2
25.2
25.4
23.1
22.0
22.0
19.8
18.3
16.2
14.2
13.2
12.5
23.1
22.3
19.7
19.2
19.2
18.5
17.3
16.4
14.3
13.6

Source: Reserve Bank of India (2011), Survey of Small Borrowal Accounts, 2008, RBI Bulletin, May.

Since 1975, one observes three limits: Rs.10000, Rs.25000 and Rs.2.00 lakh. In 1975, the
number of small borrowal accounts stood at 5607 thousand which continuously increased till
1992, the year of financial reforms initiation, to decline since then till 1998 (16828 thousand).
The next three years saw fluctuation in accounts. However, since
2001, the number of accounts have continuously risen from 50997 thousand to touch
94132 thousand by 2008 end. The amount outstanding has been rising 1975 from
Rs.831 to Rs.329396 in 2008. The average outstanding amount though rising since 1975 till
1998; never touched Rs.10000. A sudden jump is witnessed in 1990 over 1998 and it doubled
between 1999 and 2008. These changes reflect policy shifts and also show that poor farmers
require small amount of loans. The share of small borrowal accounts has always been higher
than 90 percent except 2007 and 2008. A decline in share is observed though after
2000. Between 1999 and 2008, the share fell by 9.5 percentage points. This period also was
of doubling of credit flow to agriculture 2004-05 to 200607. The share of small borrowals accounts in amount outstanding rose from 9.2 percent in
1975 in all accounts to 25.4 percent in 1989 to decline continuously till 1998
(12.5%). The share suddenly doubled in 1999 to decline continuously to 13.6 percent in
2008. This again reflects on exclusion of small borrowals from credit market.
The number of small borrowal accounts grew at an annual rate of 19.21 percent during the
first phase (1975-83- credit limit up to Rs.10000) while they grew at 3.65 percent at much
lower rate during 1984-98 (credit limit of Rs.25000) and then at 7.43 percent during 19992008 (credit limit of Rs.2 lakh). For the entire period (1975-2008), the growth rate of small
borrowal accounts is 6.48 percent. On the other hand, amount outstanding has grown at
25.94 percent, 11.21 percent, 16.07 percent and 18.44 percent during the same periods
respectively. On the other hand, the average amount outstanding has observed increasing
growth rate for each period beginning 1975-83, which means that with changes in cut-off
credit limit increase the average outstanding amount has grown at a higher rate. For the
entire period, the growth rate observed is
11.23 percent.
The average amount outstanding per small borrowal account increased from Rs.1482 in
1975 June to Rs.2149 in June 1983. As the cut-off credit limit was raised to Rs.25000 in
June 1984, the share of small borrowal accounts in terms of number of accounts

remained almost stable around 95 percent during the period June 1984 to March 1992. The
subsequent period witnessed a steady decline in the share from 94.2 percent in
1993 to 87.4 percent in 1998. From March 1999, the cut-off point of credit limit for
small borrowal accounts was raised to Rs.2.00 lakh. The share number of small
borrowal accounts in all accounts rose to 97.5 percent by March 1999 and steadily declined to
88.0 percent in March 2008. Similarly, the share of these accounts in amount outstanding at
23.1 percent in March end 1999 began slumping and stood at 13.6 percent by March
2008. However, the average amount accounting per small borrowal account showed a
continuous upward trend from Rs.17311 in March 1999 to Rs.34993 in March 2008.
The distribution of small borrowal accounts as per size of credit limit up to Rs.25000. Table
2.30 shows that in 2001 share of small borrowal accounts of Rs.25000 and less accounted for
82.8 percent which reduced steadily to 57.6 percent by March 2008. During this period,
percentage share of amount outstanding almost halved from 32.7 percent in 2001 to 15.5
percent in 2008.
Table 2.30: Small Borrowal Accounts to Agriculture (end March)
Size
of
amount
outstanding Rs.

Number of Accounts
Amount Outstanding
% share
% share
2001
2004
2006
2008
2001
2004
2006
2008
< 25000
82.8
70.0
61.2
57.6
32.7
17.1
13.3
15.5
25000- 50000
9.8
15.3
20.1
19.7
11.4
10.8
11.0
20.8
50000- 75000
2.0
3.8
4.8
8.9
4.0
4.3
4.3
15.3
75000- 100000
0.8
3.4
4.5
5.1
2.4
5.5
5.7
12.5
100000- 150000
1.3
1.9
2.7
5.4
4.5
4.1
4.7
18.0
150000- 200000
2.2
2.6
2.6
2.7
11.0
7.3
5.6
13.3
< 200000
98.8
97.1
95.9
99.4
66.0
49.2
44.8
95.3
Source: Reserve Bank of India (2004), Survey of Small Borrowal Accounts, 2001, RBI Bulletin, May; Reserve
Bank of India (2006), Survey of Small Borrowal Accounts, 2004, RBI Bulletin, October; Reserve Bank of
India (2011), Survey of Small Borrowal Accounts, 2008, RBI Bulletin, May.

On the other hand, share of accounts between Rs.25000 to Rs.50000, increased from
9.8 percent in 2001 to 20.1 percent in 2006, but declined marginally to 19.7 percent in
2008. The share in amount outstanding, however, went up from 11.4 percent in 2001 to 20.8
percent by 2008, though fluctuating during these years. The share of accounts between
Rs.50000 to Rs.75000 more than doubled between 2001 and 2006 and then between 2006
and 2008 when the share in amount outstanding stagnated till
2006 to abruptly rise by almost 4 times by 2008. At the other end, share of small

borrowal accounts (Rs.1.5- 2.0 lakh) almost remained same during this period, but
share in amount outstanding that stood at 11 percent in 2001 declined to 7.3 percent in
2004 and then to 5.6 percent in 2006. In 2008, the share rose to 13.3 percent.
2.5.4. Primary Agricultural Credit Societies
The traditional people based local institution that has been in forefront of provisioning of
credit to farmers is PACS- third tier of cooperatives. However, PACS have been invariable
in control of better of sections of farming community 33.
Table 2.31: Progress of PACS (Rs.
crore)
Items
No. of PACS
(000)
Members
lakh
Borrowerslakh
% Borrowers
Owned funds
Deposits
Borrowings
Rs.
Total
Resources
Owned funds
as % of Total
Resources
Deposits as
% of Total
Resources
Borrowings
as % of Total
Resources
Loans
Outstandings
Average
outstanding/
borrower
member Rs.

1994

1995

2000

2002

2003

2004

2005

2006

2007

91.6

91.1

101.5

98.2

112.3

105.7

108.8

106.4

97.2

890

906

1086

1021

1236

1354

1274

1252

1258

505

380

430

555

639

513

451

461

479

56.74

41.94

39.59

54.36

51.70

37.89

35.40

36.82

38.08

60.38

57.90

2694
2102

3141
2962

5338
12459

6855
14846

8198
19120

8397
18143

9197
18976

9292
19561

11039
23484

10984
25449
47848

11906
26243
48919

9117

10176

22350

29475

30278

34257

40249

41018

43714

13913

16550

40147

51176

57596

60797

68422

69871

78237

84281

87068

19.36

18.98

13.30

13.39

14.23

13.81

13.44

13.30

14.11

13.03

13.67

15.11

17.90

31.03

29.01

33.20

29.84

27.73

28.00

30.02

30.20

30.14

65.53

61.49

55.67

57.60

52.57

56.35

58.82

58.71

55.87

10534

12141

28546

40779

42411

43873

48785

51779

58620

2086
3195
6639
7348
6637
8552
Source: Performance of PACS (various issues), NAFSCOB.

10817

11232

12238

2008
94.9

2009*
95.6

1315

1323

794

766

56.77

56.18

57642

58686

7260

7661

Table 2.31 shows that in 1994, 91.6 thousand PACS existed with 890 lakh
members. Of these, 505 lakh were borrowers (56.7%). In 2009, the number of PACS
rose to 95.6 thousand with 1323 lakh members. Of these, 766 lakh were borrowers
(57.9%). Thus, both number of PACS and its membership have increased over the years.
However, the percentage of borrowing members has been widely fluctuating. For
instance, it reduced to 41.94 percent in 1995 from the previous year and further
declined to 39.59 percent in 2000. It stood at 54.36 percent in 2002 to decline continuously
since then till 2005 (35.4%). It peaked at 60.38 percent in 2008 to decline next year.

It is reflected in regulations of PACS who does not get loan if defaulter. Also being a
member is not a sufficient condition for being a borrower and hence an increasing proportion
of borrowing members needs to be taken as a positive reflection of an increasing access to
cooperative credit among the members of PACS. The average amount outstanding per
borrowing member increased from Rs.2086 in 1994 to Rs.12238 in 2007 to decline
significantly in 2008 to Rs.7230. This was the year of loan waiver. On the financial health of
the PACS, we find that total resources have multiplied by more than 6 times. In 1994, the
share of own funds in total resources stood at 19.36 percent that rose reduced to 13.67 percent
by 2009 while share of deposits improved from 15.11 percent to 30.14 percent during the
same period, though fluctuating over the years. This apparently is the result of allowing
PACS to mobilize funds from members through deposits. Borrowing has been contributing
significantly to total resources of PACS, though the contribution is declining over the period,
65.53 percent in
1994 to 56.18 percent in 2009.
Table 2.32: Coverage of Vulnerable Sections by PACS
Category

2002- 2003-04
2004- 2005-06 2006-07 2007-08
CGR %
03
05
Total Members
123552
135411 127406
125197
125792
131530
1.0
Share in total members
100
100
100
100
100
100
SC
26.9
22.6
24.3
24.4
23.4
22.6
-1.8
ST
9.7
8.8
9.3
9.3
8.8
8.5
-1.2
Small farmers
35.2
37.0
38.8
35.7
35.1
37.3
2.0
Rural Artisans
6.1
4.7
5.7
5.2
3.4
3.6
-7.5
Total Borrowers
63880
51265
45070
46081
47910
79408
3.7
Share in all Borrowers
100
100
100
100
100
100
SC
18.0
9.2
16.1
15.1
11.8
9.7
-6.4
ST
12.6
6.7
7.7
7.2
7.2
6.3
-7.6
Small farmers
26.9
26.3
28.2
31.8
32.2
32.8
7.2
Rural Artisans
4.8
4.9
4.7
3.9
4.0
2.6
-6.4
Note: small farmers owns up to 2 hectares. SC= scheduled caste, ST- scheduled tribe. CGR- compound
annual growth rate.
Source: NAFSCOB.

Table 2.32 shows that in 2002-03, scheduled caste constituted 26.9 percent of all
members, 9.7 percent were scheduled tribe and 35.2 percent were small farmers (with

land up to 2 hectares). By 2007-08, the corresponding proportions of marginal sections stood


at 22.6 percent scheduled castes, 8.5 percent scheduled tribe and 37.3 percent small farmers.
This means, scheduled caste and scheduled tribe observed reduction in their representation
(growth of -6.4% and -7.6% respectively), though small farmers improved their
representation (7.2% per annum growth). Small farmers in numbers grew at 2.0 percent
only. This indicated that an increasing number of small farmers were able to seek credit
from PACS in recent times. Among the total borrowers in 200203 of PACS, scheduled caste constituted 18.0 percent, scheduled tribe 12.6 percent and small
farmers 35.2 percent. Thus, given the membership representation in PACS of these
marginal categories, the representation the borrowing members were small, except for
small farmers.
A worrisome factor of PACS is that there is a regional imbalance. There is considerable
concentration in western region, especially in Maharashtra. In 2007-08, there were 7 villages
per PACS, on an average, in India while the ratio was only 2 for the western region 34. On the
other hand, the ratio exceeded 10 villages per PACS for central, eastern and north-eastern
regions reflecting poor penetration of PACS in these regions. This indicator too provides a
limited insight into the effective access to PACS given the differences in the population size
of villages and distance between villages across regions.
The PACS are the direct purveyors of credit to the rural borrowers, both the coverage and
viability of PACS needs to be strengthened so as to ensure inclusive finance from the
cooperative structure as well as to enhance the stability of the short-term cooperative
structure 35. Given that the business of the short-term cooperative credit and banking
structure- in terms of both credit and deposits- is a more dominant constituent of the rural
cooperative structure, the stability of the short-term cooperative structure has major
implications for the stability of the entire rural
cooperative structure and thus of the rural financial system as a whole.

2.5.5. Special Agricultural Credit Plan


The public sector banks have been formulating Special Agricultural Credit Plans (SACP)
since 1994-95 with a view to achieving distinct and marked improvement in the flow of credit

to agriculture. Under SACP, the banks are required to fix self-targets for achievement during
the financial year. The SACP mechanism was also made applicable to private sector banks
from the year 2005-06.The disbursements to agriculture by private banks under the plan
aggregated to Rs.47862 crore against the projection of Rs.41427 crore during 2007-08115.53 percent achievement and during 2008-09, achievement was 111.2 percent over the
previous year (table 2.33). The achievement in case of public sector banks is lower than
the private banks, though the quantum of credit flow is three times that of private sector
banks.
Table 2.33: Credit to Agriculture from Public Sector Banks under SACP (Rs. crore)
Achievement of
target (%)
Year
Target
Disbursements
2005-06
85024
94278
110.9
2006-07
118160
122443
103.6
2007-08
152133
133226
87.6
2008-09
159470
165198
103.6
Source: RBI, Report on Trend and Progress of Banking in India 2008-09, Mumbai.

Growth %
44.6
29.9
8.81

2.5.6. Agricultural Debt Waiver and Dent Relief Scheme, 2008


Union government announced a scheme of Agricultural Debt Waiver and Dent Relief for
farmers with the total value of overdue loans being waived estimated at Rs.50000 crore and a
one-time settlement (OTS) relief on the overdue loans at Rs.10000 crore in 200809 for implementation by all institutions. The scheme covered direct agricultural loans
extended to marginal and small farmers and other farmers by SCBs, RRBs, cooperative credit
institutions (including urban cooperatives) and local area banks. In case of a short-term
production loan, the amount of such loan and in the case of an investment loan, the
instalments of such loan that are overdue (including interest applicable), were made eligible
for debt waiver or debt relief 36.
The loan was conditional to the fact that loan was disbursed up to March 31, 2007 and
overdue as on December end 2007 and remaining unpaid until February 29, 2008;
restructured and rescheduled by banks in 2004 and in 2006 through the special

packages announced by the Central government whether overdue or not; and restructured and
rescheduled in the normal course up to March end 2007 as per applicable RBI guidelines on
account of natural calamities, whether overdue or not. Entire amount due from small or
marginal farmer was eligible amount. In case of other farmers, OTS was available under
which the farmer was given a rebate of 25 percent of the eligible amount subject to the
condition that the farmer has repaid the balance of 75 percent of the eligible amount.

Table 2.34: No. of Accounts (Cooperatives and RRBs) that Received Loan Waiver
States
Delhi
Haryana
Himachal Pradesh
J&K
Punjab
Rajasthan
Arunachal Pradesh
Assam
Manipur
Meghalaya
Mizoram
Nagaland
Sikkim
Tripura
Andhra Pradesh
Karnataka
Kerala
Pondicherry
Tamil Nadu
A&N Islands
Bihar
Jharkhand
Orissa
West Bengal
Goa
Gujarat
Maharashtra
Chhattisgarh
Madhya Pradesh
Uttar Pradesh
Uttarakhand

No.
of No.
of
A/Cs
operational
received
holdings
LWDR
(000)
2001-02
600
28
570620
1528
67100
914
25620
1443
210910
997
1037890
5819
4440
107
84650
2712
42940
149
10820
214
7380
76
8940
144
530
67
26630
479
3443040
11532
683630
7079
747040
6657
8100
38
165860
7859
1220
11
818840
11574
208590
1528460
4067
877460
6790
3410
64
539290
4239
3028950
12138
462760
3255
1571230
7360
2981430
21668
90150
891

No. of A/Cs Per A/C


benefited as a
Debt
%
waiver
of operational
holdings
2.14
81652
37.34
39018
7.34
26732
1.78
18470
21.15
34819
17.84
20228
4.15
13933
3012
15770
28.82
6391
5.06
12622
9.71
26104
6.21
11547
0.79
16769
5.56
16524
29.86
16008
9.66
23291
11.22
20688
21.32
23313
2.11
18344
11.09
14165
7.07
18017
14547
37.58
13944
12.92
12332
5.33
17678
12.72
31345
24.95
20394
14.22
9729
21.35
15421
13.76
17318
10.12
11054

Per A/C
Debt
relief

Per
A/C
(waiver
plus relief)

87350
24871
38212
11295
21745
17768
74600
10583
48493
16529
14571
23800
28000
17400
15062
23398
25668
14661
14042
8050
17257
15664
16387
25215
10625
35753
22712
12628
16639
20658
8714

82982
33013
27177
18170
29309
19262
15846
15651
6528
12648
25619
11588
16981
16526
15900
23321
20759
22320
17601
11659
17994
14563
14045
12393
16685
32959
21018
10507
15708
17552
10956

Source: Ministry of Agriculture (2010), Report of the Task Force on Credit Related Issues of Farmers, June

Further, small and marginal farmers became eligible for fresh crop loan while other
farmers became eligible up on paying one-third of his share. In case of investment loan, the
other farmers became eligible for fresh investment loan up on paying his share in
About 192.59 lakh farmer borrowers of cooperative banks and RRBs are

full.

estimated to have benefited under the scheme, of which small and marginal farmers constituted
83.5 percent. NABARD under the ADWDR Scheme 2008 disbursed Rs.25485 crore against
the claims of Rs.25858 crore. The share of SCB, SCARDB and RRBs stood at Rs.15681 crore,
Rs.3513 crore and Rs.6291 crore respectively 37.
Farmers who were regular with repayment of their loans had already benefited from
regular access to low interest bearing agricultural loans and could continue to benefit from
such credit and farmers who had been defaulters but had repaid loans based on state initiated
one-time settlement (OTS) schemes offering less benefit, just preceding the announcement of
the ADWDRS were not able to avail ADWDRS. Across states, maximum accounts receiving
LWDR were from Andhra Pradesh followed by Maharashtra, Uttar Pradesh, Madhya
Pradesh, Orissa; corning 65.18 percent of all LWDR (loan waiver and debt relief) accounts
(table 2.34).
The other states of some importance (3% & above accounts) are Rajasthan, Karnataka,
Kerala, Bihar and West Bengal. Per account debt relief varied between a low of Rs.8050 in
Andaman & Nicobar Islands and Rs.87350 in Delhi while per account debt waiver ranged
between a low of Rs.6391 in Manipur and high of Rs.81652 in Delhi. Per account (waiver
plus relief) is the highest in Delhi at Rs.82982 and the lowest in Manipur at Rs.6528.
This means that in high suicide districts of Maharashtra, Andhra Pradesh, Orissa, Karnataka
and Punjab farmers benefited with lower debt waiver and relief. In Andhra Pradesh, those
indebted farmers who did not benefit from the scheme got relief from the state government of
Rs.5000 or the loan amount (whichever was lower). In Kerala, there was a one-time
settlement for cooperatives prior to ADWDR,
2008 and the proportion of beneficiaries fro the waiver is low. Tamil Nadu waived of all
agricultural

loans

outstanding

as

on

March

2006

payable

by

the

farmers

to

cooperatives. This covered other special societies, which disbursed agricultural loans.
However, the growing commercialization of Indian agriculture has encouraged the
emergence of trader- moneylender as the formal sector is inadequate to meet the
growing credit requirements of agriculture. Farmers are borrowing in many situations

at the rate of five to ten percent per month 38. Micro finance institutions are also, largely
indirectly, lending to farmers in some states 39. There is need for regulatory practices to

undergo a change and adapt to the new reality as many of these players are not included in the
existing regulatory framework on money lending. The ADWDRS, 2008 benefited
3.68 crore accounts making them eligible for fresh credit from formal institutions. This
should have led to a significant increase in the number of accounts, but the less than 5 percent
annual growth in the number of accounts in 2008-09 and the provisional numbers for 2009-10
have been disappointing (table 2.35).

Table 2.35: Trends in the Number of Accounts (in lakh) and Amount (Rs. crore) for GLC
under Agriculture
Agency

2006-07
No. of Amount
A/Cs
SCBs
172
166485
%
40.66
72.57
Coop.
189
42480
%
44.68
18.52
RRBs
62
20435
%
14.66
8.91
Total
423
229400
%
100
100
Source: NABARD.

2007-08
No. of A/Cs Amount
174.79
39.78
201.81
45.93
62.74
14.28
439.34
100

181087
71.11
48258
18.95
25311
9.94
254656
100

2008-09
No.
of Amount
A/Cs
202.45
228951
44.39
75.89
178.18
45965
39.07
15.24
75.47
26764
16.55
8.87
456.1
301680
100
100

2009-10
No. of Amount
A/Cs
205.3
274963
42.57
74.94
203.92
57500
42.28
15.67
73.08
34456
15.15
9.39
482.3
366919
100
100

It is also argued that defaulters prior to April 1997 were not covered and there appeared
to be a case for banks as well as PACS to write off such long-standing default and bring such
farmers back into the institutional fold. There are instances where farmers, who were members
of functional cooperatives that gave agricultural credit, did not benefit. On the one hand, there
are such farmers who obtained gold loan for agricultural purposes but did not benefit from
the waiver as the loan was recorded under other purposes. On the other hand, there were
non-farmers who had taken gold loan for non-agricultural purposes but benefited from waiver,
as the loan was recorded
in the bank ledger as agricultural to help it meet its priority sector target 40.

2.6. Credit and Small Farmers


A number of scholars have attempted to assess inequity in the distribution of
agricultural credit in the past 41. Some scholars have pointed out that institutional credit forms
small part of the credit needs of the small farmers. Others have argued that small farmers have

received more than their proportionate share of total institutional credit vis--vis their share in
land. Credit absorption is technology determined. Estimates42 of demand for credit by the
agriculture sector, for the Ninth Plan (1997-98 to 2001-02), had put it at Rs.229750 crore
(both short- and long-term). The share of small and marginal farmers was put at 47.25
percent (Rs.108556.9 crore): 55.6 percent for short- term (Rs.60357.62 crore) and 31.7
percent for long- term (Rs.34412.53 crore). The Task Force on Agricultural Credit provided
estimates on the magnitude of demand for agricultural credit for the Tenth Plan 43. The
demand for production credit was estimated to lie between Rs.86000 crore and Rs.122928
crore. It has been felt that there is need to supply credit to small farmers to promote capital
formation, due attention needs to be paid by credit institutions. However, what has been the
situation in terms of credit flow to small/marginal farmers is analyzed below.
The underlying objective in granting priority sector status to agriculture was to ensure
that credit flowed specially to the small and marginal farmers who constituted the bulk of the
agricultural labour force. Data on loans disbursed by SCBs to agriculture according to size of
land holdings (table 2.36) shows that share of small and marginal holdings in direct finance
(disbursements) in 1981-82 was 48.44 percent that increased to 54.49 percent in 1990-91 and
further increased to 60.47 percent in 1998-99, a significant decline. However, in 2007-08 it
stood at 50.23 percent. Over the years the share has fluctuated. This is because the share
of small and marginal holdings in number of accounts increased from 75.17 percent in
1981-82 to 77.95 percent in 199091 but reduced to 69.17 percent in 2007-08. This implies that the reforms have had adverse
impact on formal sector lending to small and marginal farmers. Loans in absolute terms
multiplied manifolds but share in total agricultural loans did not show
any significant improvement in case of small and marginal farmers. This does not augur

well for Indian agriculture. This is complicated by the fact that size of loan itself has
gone up across holding sizes over the period. For instance, holdings up to 2.5 acres observed
an increase in per farm finance from Rs.1965 in 1981-82 to Rs.6026 in 199091 to Rs.15701 in 2000-01 and then to Rs.38383 in 2007-08. In case of holdings of 2.5 to
5 acres, the average loan expended has improved from Rs.3012 in 1981-82 to Rs.7810 in
1990-91 to Rs.19581 in 2000-01 and to Rs.52017 in 2007-08.
Table 2.36: SCBs Direct Finance to Farmers According to Size of Holdings
(Disbursements)

Accounts

Year

Loans
Up to 2.5

1981-82
1982-83
1983-84
1984-85
1985-86
1986-87
1987-88
1988-89
1989-90
1990-91
1991-92
1992-93
1993-94
1994-95
1995-96
1996-97
1997-98
1998-99
1999-00
2000-01
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08

50.56
50.70
48.98
46.03
46.77
45.70
47.41
47.28
47.38
48.06
45.41
44.47
42.68
42.24
37.37
37.77
39.43
39.49
40.42
40.78
38.43
38.90
42.83
43.97
40.54
41.55
41.28

CGR
%
198182/2007-08
CGR
%
198182/1989-90%
CGR
199091/1999-00
CGR
%
199900/2007-08
Source:
Computed.

27.74
29.68
26.60
26.11
27.51
27.62
27.99
27.64
29.26
30.17
28.78
27.83
28.78
27.57
26.14
24.24
24.01
39.02
23.82
25.76
26.70
22.12
24.94
26.35
25.06
24.95
26.22

Share in Total (%)

Loans Accounts
Accounts
2.5 to 5.0

24.61
25.35
28.68
31.24
29.54
30.97
30.58
31.36
30.80
29.89
31.44
31.76
30.35
31.55
31.19
30.49
33.95
32.13
32.29
31.84
27.73
30.17
31.10
31.14
29.73
27.93
27.89

20.70
21.60
24.49
24.87
26.26
25.80
25.82
26.20
25.21
24.32
24.88
24.55
25.80
24.02
25.50
25.50
25.33
21.45
24.74
25.09
26.81
25.52
23.02
25.66
26.25
23.17
24.01

Average Finance (Rs. per account)


Holding Size (Acres)

Loans

Above 5.0

24.83
23.95
22.34
22.73
23.69
23.33
22.01
21.36
21.82
22.05
23.15
23.77
26.97
26.21
31.44
31.74
26.62
28.38
27.29
27.38
33.84
30.93
26.07
24.89
29.73
30.52
30.83

51.55
48.72
48.91
49.02
46.23
46.57
46.20
46.16
45.52
45.52
46.34
47.61
45.41
48.40
48.37
50.26
50.66
39.53
51.44
49.15
46.49
52.36
52.04
48.00
48.69
51.88
49.78

Up to
2.5
1965
2224
2206
2767
3164
3707
3685
4021
5022
6026
6294
6259
6957
8327
9886
10482
10875
25074
14253
15701
16245
19383
21431
24192
33619
38984
38383

2.5 to
5.0
3012
3236
3470
3884
4781
5108
5270
5747
6657
7810
7859
7732
8770
9710
11557
13658
13324
16938
18530
19581
22613
28842
27236
33260
48008
53862
52017

Above
5.0
7433
7727
8898
10520
10496
12241
13102
14859
16969
19822
19884
20030
17366
23553
21744
25851
33993
35335
45598
44622
32124
57716
73448
77850
89052
110379
97607

12.13

11.58

10.47

11.67

12.09

10.53

10.87

10.79

13.98

11.10

9.70

12.38

17.13

16.66

18.80

17.55

Total

3580
3799
4064
4878
5379
6132
6243
6877
8132
9600
9932
10000
10315
12754
14136
16329
17859
25372
24187
24854
23384
34093
36797
40371
54378
64926
60442

The average loan issued in case of holdings beyond 5 acres increased from Rs.7433 in
1981-82 to Rs.19822 in 1990-91 and further to Rs.44622 in 2000-01 and then to Rs.97607
in 2007-08. The ratio of average loans disbursed to marginal to small farms and small to
large farms in 1981-82 stood at 1:1.53 and 1:2.47 respectively and
1:3.78 in case of marginal farms to large farms. In 1990-91 the corresponding ratios
were 1:1.30, 1:2.54 and 1:3.29 and in 2000-01 they were 1:1.25, 1:2.28 and 1:2.84
respectively. In 2007-08 the ratios respectively were 1:1.36, 1:1.88 and 1:2.54. Thus, gap
in average disbursement of loan between marginal and small farmers reduced over the period,
but climbed again in 2007-08. However, the gap in average disbursement of loan between
small and large farmers and between marginal and large farmers continuously reduced since
1981-82.
As regards the growth in the average loan disbursed, in case of marginal farmers it
grew at 12.13 percent during 1981-82 to 2007-08, for small farmers at 11.58 percent and for
large farmers at 10.47 percent, though the quantum is in obverse. For all farmers,
credit disbursed grew at 11.67 percent. The average loan disbursed to marginal farmers
grew at 12.07 percent during 1981-82 to 1989-90, for small farmers at 10.53 percent and for
large farmers at 10.87 percent when for all farmers credit disbursed grew at 10.79 percent.
Further, the average loan disbursed to marginal farmers grew at 13.98 percent during
1990-91 to 1999-00, for small farmers at 11.10 percent and for large farmers at
9.70 percent, though the quantum is in obverse when for all farmers credit disbursed grew at
12.38 percent. The average loan disbursed to marginal farmers grew at 17.13 percent during
2000-01 to 2007-08, for small farmers at 16.66 percent and for large farmers at 18.80 percent.
For all farmers credit disbursed grew at 17.35 percent.
This shows that decades of nineties compared to eighties observed higher
growth in credit disbursed to marginal and small farmers when it witnessed a decline in
growth rate in case of large farmers. However, the growth rate of credit disbursed
observed improved growth rates in the present decade over the nineties, the growth in case of
large farmers in fact almost doubled. This means that current policies especially doubling of
credit programme had a biased towards the large farmers. These changes

are reflective of changing cropping pattern as observed earlier. However, as the holding size
increases, credit flow goes up. The demand for institutional credit is thus increasing across
farm sizes during the reform period.
Table 2.37: SCBs Direct Finance to Farmers According to Size of Holdings (Outstanding)
Share in Total (%)

Accounts
Loans
Up to 2.5

Year

1981-82
1982-83
1983-84
1984-85
1985-86
1986-87
1987-88
1988-89
1989-90
1990-91
1991-92
1992-93
1993-94
1994-95
1995-96
1996-97
1997-98
1998-99
1999-00
2000-01
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08
CGR
08
CGR
90
CGR
00
CGR
08

44.83
43.45
44.73
43.76
43.27
43.38
43.16
43.32
43.02
43.69
42.78
42.08
43.14
42.02
41.87
40.46
39.83
38.30
38.84
38.84
39.99
37.46
39.86
39.57
38.80
40.65
38.33

21.50
22.46
22.03
22.03
22.82
22.77
22.17
23.02
22.93
23.37
24.27
24.19
24.11
24.45
24.19
23.99
22.73
23.11
22.62
22.91
23.34
21.83
25.72
26.12
26.60
26.68
26.69

Loans
Accounts
Accounts
2.5 to 5.0

25.50
26.11
28.47
29.87
30.15
30.76
30.80
31.06
30.77
30.94
31.32
30.98
30.75
31.13
32.06
32.23
32.86
32.25
32.28
31.15
32.32
32.28
31.48
31.84
31.44
30.82
32.14

17.98
19.69
21.17
22.03
22.18
22.78
22.49
22.90
22.47
23.17
22.85
23.42
22.88
23.00
24.01
24.68
24.46
23.82
23.57
23.21
25.81
25.17
24.28
26.45
26.18
27.02
26.79

Loans

Above 5.0

29.67
30.45
26.80
26.37
26.58
25.86
26.04
25.63
26.21
25.37
25.89
26.94
26.12
26.86
26.08
27.31
27.32
29.45
28.88
30.02
27.69
30.25
28.67
28.59
29.76
28.53
29.53

60.52
57.85
56.80
55.94
55.00
54.45
55.34
54.08
54.60
53.47
52.88
52.39
53.01
52.55
51.80
51.33
52.81
53.06
53.82
53.87
50.85
53.00
50.01
47.43
47.22
46.31
46.51

% 1981-82/2007% 1981-82/1989% 1990-91/1999% 1999-00/2007-

Average Finance (Rs. per account)


Holding Size (Acres)

Up to
2.5
1908
2133
2353
2634
2990
3218
3432
3827
4484
4717
5342
5674
5985
7119
7785
9241
10344
12502
13611
15685
17868
20663
24326
28085
36071
37509
40949

2.5 to
5.0
2806
3111
3553
3859
4169
4540
4878
5310
6143
6604
6871
7462
7966
9041
10094
11929
13490
15306
17064
19810
24453
27654
29076
35340
43815
50099
49023

Above
5.0
8117
7839
10124
11102
11732
12911
14198
15196
17523
18591
19237
19195
21727
23938
26770
29284
35039
37330
43560
47716
56226
62141
65767
70569
83482
92785
92638

Total

12.60

11.83

10.11

11.28

10.75

9.66

10.32

9.59

12.81

11.82

10.40

11.90

15.66

14.07

9.49

12.29

3979
4126
4777
5232
5669
6131
6681
7201
8412
8820
9419
9871
10705
12234
13475
15581
18123
20718
23375
26584
30618
35469
37701
42541
52617
57157
58807

Source: Computed.

Farmers, especially small/marginal farmers are invariably blamed for poor recovery of
loans by RFIs. Table 2.37 reveals credit outstanding by farm size. It is interesting to note that
farmers with holding size of below 2.5 acres had a share of 43.7 percent in number of
accounts outstanding in 1990-91 and 40 percent in 2001-02. On

the other hand, the share of farmers with holding size of 5 acres and above increased from
25.4 to 27.7 percent. In case of amount outstanding, farmers with holding size of below 2.5
acres had a 23.4 percent share in 1990-91 that rose to 24.2 percent in 199495 to fall to 23.3 percent in 2001-02. The share of farmers with holding size of 5 acres and
above has more or less been around 53 percent but fell to 51 percent in 2001-02. This shows
that marginal and small farmers have much lower share in amount outstanding compared to
large farmers. Large farmers default more than small/marginal farmers. Table also shows
that the average loan outstanding per farmer in case of farmers with holding size of below 2.5
acres was Rs.4717 in 1990-91 that has continuously increased to Rs.17870 (3.8 times growth)
in 2001-02. In case of small farmers (holding size of 2.5 to 5 acres), the average
outstanding loan of Rs.6605 in
1990-91 increased to Rs.24456 in 2001-02 (3.7 times growth). For large farmers, the
average outstanding loan was Rs.23077 per farmer in 1990-91 and it declined to Rs.
19701 in 2001-02 (14.6% decline). However, at the aggregate level, the average outstanding
loan has risen from Rs.8821 to Rs.30619 during the period 1990-91/200102 (figure 2.5).
Figure 2.5
Average Direct Finance Disbused to Farmers by Land Size

Average Amount Rs (000's)

120.00
100.00
80.00
60.00

up to
acres

2.5

2.5

5.0

to

acres

40.00

above

5.0 acres Total


20.00
0.00

Years

The average loan outstanding to marginal farmers grew at 12.60 percent during
1981-82 to 2007-08, small farmers at 11.83 percent and large farmers at 10.11 percent.

For all farmers credit outstanding grew at 11.28 percent. The average loan outstanding to
marginal farmers grew at 10.75 percent during 1981-82 to 1989-90, small farmers at
9.66 percent and large farmers at 10.32 percent. For all farmers credit outstanding grew at
9.59 percent. The average loan outstanding to marginal farmers grew at 12.81 percent
during 1990-91 to 1999-00, small farmers at 11.82 percent and large farmers at
10.40 percent.
For all farmers, credit outstanding grew at 11.90 percent. During 2000-01 to
2007-08 the average loan outstanding of marginal farmers grew at 15.66 percent, that of
small farmers at 14.07 percent and large farmers at 9.49 percent. For all holdings, credit
outstanding grew at 12.29 percent. Thus, credit outstanding has grown in each decade at an
increasing rate in case of marginal and small farmers while in case of large farmers credit
outstanding has observed almost constant growth during the eighties and nineties, but a
reduced growth in the present decade. Higher growth does not mean that enhanced credit is
deployed in case of marginal and small farmers as seen in case of average credit disbursed
and amount outstanding. This reflects on repaying capacities of small and marginal farmers
and therefore reduced flow of credit to them.

Figure 2.6
Direct Finance to Farm ers by Land Size (Outstanding)
100.00
Per account amount Rs (000')

90.00
80.00
up to
acres

70.00
60.00

2.5

50.00

to

acres

40.00

2.5
5.0
above

5.0 acres Total

30.00
20.00
10.00
0.00

Years

The gap between marginal and large farmers and small and large farmers has
narrowed down over the years when gap between marginal and small farmers has

remained constant. The above discussion reveals that the reform period has seen RFIs biased
against small/ marginal farmers despite the fact that they have performed better in terms of
loan repayments. It is pointed out that lower end of farming community deserves added
attention in terms of credit flow. These farmers have poor savings and therefore lack of credit
flow adversely affects their crop production activity and so income levels.
Table 2.38: Scheduled Commercial Banks Direct Finance (Disbursements) to Farmers by
Holding Size (Short- term and Long-term Loans) (Amount in Rs. crore and accounts in
000)
Years

Up to 2.5 acres
No. of
A/Cs
682
1304
1831
1829
1950
2045
2236
2191
2057
1960
1862
1871
1886
2032
2024
2076
2104
2308
2342
2382
2679
2494
3711
4478
5004
5963
6605

2.5 to 5.0 acres


No of
A/Cs
332
652
1072
1241
1232
1386
1442
1453
1337
1219
1289
1336
1341
1518
1689
1676
1811
1878
1871
1860
1933
1934
2695
3172
3670
4008
4463

Amount
Amount
1981-82
134
100
1982-83
290
211
1983-84
404
372
1984-85
506
482
1985-86
617
589
1986-87
758
708
1987-88
824
760
1988-89
881
835
1989-90
1033
890
1990-91
1181
952
1991-92
1172
1013
1992-93
1171
1033
1993-94
1312
1176
1994-95
1692
1474
1995-96
2001
1952
1966-97
2176
2289
1997-98
2288
2413
1998-99
5787
3181
1999-00
3338
3467
2000-01
3740
3642
2001-02
4352
4371
2002-03
4834
5578
2003-04
7953
7340
2004-05
10833
10550
2005-06
16823
17619
2006-07
23246
21588
2007-08
25352
23215
CGR % 1981-82/ 200708
4.93
17.67
6.09
18.37
CGR % 1981-82/ 198990
11.41
24.88
15.56
27.73
CGR % 1990-91/ 199900
2.44
16.76
5.47
17.18
CGR % 1999-00/ 200708
18.49
38.78
15.16
34.29
Source: RBI (2009-10), Handbook of Statistics on the Indian Economy, Mumbai.

Above 5.0 acres


No. of
A/Cs
335
616
835
903
988
1044
1038
990
947
899
949
1000
1192
1261
1703
1745
1420
1659
1581
1599
2359
1983
2259
2535
3670
4379
4932

Total

Amount
249
476
743
950
1037
1278
1360
1471
1607
1782
1887
2003
2070
2970
3703
4511
4827
5862
7209
7135
7578
11445
16592
19735
32682
48335
48140

No. of
A/Cs
1349
2572
3738
3973
4170
4475
4716
4634
4341
4078
4100
4207
4419
4811
5416
5497
5335
5845
5794
5841
6971
6411
8665
10185
12344
14350
16000

Amount
483
977
1519
1938
2243
2744
2944
3187
3530
3915
4072
4207
4558
6136
7656
8976
9528
14830
14014
14517
16301
21857
31885
41118
67124
93169
96707

7.21

18.43

5.86

18.22

10.81

22.85

12.42

24.55

7.67

18.11

4.72

17.68

16.53

38.43

17.26

37.84

This is a case of institutional failure. It is quite clear that RFIs are not advancing
credit to agriculture at the rate warranted by the increased requirement of credit. Poorest parts
of the country viz., the tribal belts extending from Jharkhand to Andhra Pradesh, Bihar,
Orissa, Maharashtra and Chattissgarh are inadequately served by RFIs. Priority sector
lending is way behind the target. The reasons given for poor delivery by

RFIs are that transaction costs are high, low absorptive capacity in rural areas and, greater
risks. This needs to be corrected to remove the agrarian distress in India.
Table 2.38 shows that number of marginal farmer accounts (disbursement) grew at a
low rate of 4.93 percent during 1981-82/2007-08 when number of small farmer accounts grew
at a higher rate than marginal farmers at 6.09 percent and number of large farmer accounts
grew at higher rate than small farmers at 7.21 percent. However, the rate at which amount has
grown is almost similar across categories with marginal farmers observing a slightly lower
rate. During the eighties, number of marginal farmer accounts grew at 11.41 percent when
small farmer accounts grew at higher rate of
15.56 percent. But, growth observed in number of large farmer accounts is lower than both
these categories. The growth rate more drastically declined across land sizes but large farmers
observed higher growth rate than small farmers who in turn witnessed higher growth rate
than marginal farmers in number of accounts during the nineties. The same is the case with
growth in amount disbursed. Reversal took place during the current decade, but marginal
farmers still observed a lower growth in accounts compared to other two categories. This
means that short-term and long-term credit disbursement has tended to be biased against
marginal farmers.
Figure 2.7: Short-term Credit

Rs. lakh

Per Account Credit Disbursed for Marginal and Small Farmers June
2008
9.000
8.000
7.000
6.000
5.000
4.000
3.000
2.000
1.000
0.000

Up to 2.5 acres
2.5 to 5.0 acres

States

Per account credit disbursed for size class of farmers across states shows a lot of
variation (figure 2.7). For marginal farmers, it varies from Rs.22382 in Tripura to Rs.807833
in Delhi. For small farmers, the variation is from Rs.31029 in Karnataka to Rs.432354 in
Chandigarh (table 2.39). For semi-medium and above farmers, the variation is from Rs.1676
in Andaman and Nicobar Islands to Rs.215076 in Delhi. The amounts include both short-term
and investment credit for urban centres such as Chandigarh and Delhi. It suggests that though
this credit has reported as direct finance, the inclusion of either indirect agricultural; credit
or some non-agricultural credit cannot be ruled out.
The region-wise per account credit disbursed indicate wide variation for short- term
and long-term by scheduled commercial banks. In both cases, across size class, the
disbursements are the highest in the northern region and per account credit disbursed is
lower than all the India is average for the southern region. Across regions, except for north
and west, per account term credit disbursed for all land sizes taken together was almost three
times the short-term credit. In eastern, central and western regions, per account credit
disbursed for short-term loan increased disproportionately for farmers with more than 5 acres
of land.
Table 2.39: State-wise Per Account Credit Disbursed (period ending last Friday of June
2008) by Scheduled Commercial Banks
Short-term loans

States

Chandigarh
Delhi
Haryana
Himachal
Pradesh
Jammu
&
Kashmir
Punjab
Rajasthan
Arunachal
Pradesh
Assam
Manipur
Meghalaya
Mizoram
Nagaland
Sikkim
Tripura
Andhra Pradesh
Karnataka
Kerala

Up to
2.5 to
2.5
5.0
acres
acres
345619
437428

820438 83131
161512 137860
83858

5.0
plus
acres
1793586

Long-term loans
Total

710226
2788640 1633398
286607 207836

Up to
2.5
acres
337105

2.5 to
5.0
acres
410728

654527
117586

53696
168661

5.0
plus
acres
1519319

Total

785431
1228216 1083442
335849 220399

71906

93118

82525

59793

60338

132762

66791

122914 193102
148797 162232
57956
70965

144197
228468
97571

145007
188360
74713

96791
145388
121199

59652
164436
153601

121880
251484
150302

90862
210227
143744

32393
56652
26753
42373
52541
13917
374800
23998
56206
35786
14770

44679
32202
30075
24752
65763
33746
33709
22476
36975
28663
43395

129567
61644
66635
46895
85888
42867
107679
49541
85183
63629
47933

144432
63845
99326
81053
127336
840047
67656
52432
70835
91772
82786

129507
305419
105938
54923
113333
71667
31143
53770
46970
144362
294010

132715
81281
82985
55549
98042
46906
89996
51014
59124
111614
79310

42748
18076
27407
21628
68667
32558
30370
18312
25681
23115
33972

60722
61379
38047
24466
68224
124125
41193
36484
37244
22628
47815

Short-term loans

Long-term loans

States

Up to 2.5
acres

2.5 to 5.0
acres

Pondicherry
Tamil Nadu
Lakshdweep
A&N Islands
Bihar
Jharkhand
Orissa
West Bengal
Damn & Diu
Goa
Gujarat
Maharashtra
D&N Haveli
Chhattisgarh
Madhya Pradesh
Uttar Pradesh
Uttarakhand
Northern region
North-eastern
region
Eastern
Central region
Western region
Southern region
All India

35341
23768
47076
42411
28619
21414
23534
31207
135901
60211
47469
73221
67786
38851
52506
43786
61045
115889

36946
32156

37324
55805

33895
34168
40215
38485
44679
170977
37432
49862
52600
71167
41064
60507
66940
94047
133421

21101
28059
45784
65546
26421
33077

51669
38543
66718
51335
33528
45145

5.0 plus
acres

Total

Up to 2.5
acres

2.5 to 5.0
acres

5.0 plus
acres

Total

49345
137752
33608
47603
57725
50748
45462
88451
32648
133123
118182
109569
88643
26382
91752
67745
97667
114048

76914
77695

120003
120973

828
72175
43029
38687
407315
10227
52015
103243
357384
2057
182360
127658
105652
112181
245906

36286
34137
47076
25121
35143
28537
31235
69389
44877
53818
77143
140534
2488
100796
98064
64040
84196
171273

81569
95286
68937
56898
122112
77383
66080
173890
143651
133080
61002
79003
144287
111537
153633

43500
182553
149240
137036
790928
71376
262493
361566
96575
1355500
177074
274056
191799
283645
266738

100104
113122
33608
60224
87471
69309
73287
301175
62762
150646
252383
101901
267597
109877
192293
144331
153292
197424

46729
129166
120677
187553
52654
88033

30754
44607
74537
108869
35165
51223

59650
63782
88986
111428
84454
86730

68951
82642
120815
152013
75897
92042

203335
409930
227153
117392
80122
122467

77643
150355
154834
119846
79971
106313

Source: RBI, Rural Planning and Credit Department.

Figure 2.8: Long-term Credit

Rs. Lakh

Per Account Credit Disbursed for Marginal and Small Farmers June
2008
9.000
8.000
7.000
6.000
5.000
4.000
3.000
2.000
1.000
0.000

Up to 2.5 acres
2.5 to 5.0 acres

States

Between 1991-92 and 2003, the share of the marginal farmers in the operated area increased
from 15.6 percent to 22.6 percent, but their share in agriculture credit flow declined from
28.79 percent to 22.12 percent and the share in the number of accounts too fell to 38.79
percent from 45.42 percent during the same period (table 2.40).

Table 2.40: Share of Small Farmers in Holdings and Credit


Share in
operational
holdings

Category

199192

2003

Share in
operated area

199192

2003

Share in Number of
agricultural accounts

199192

200203

2006-07

Marginal
62.8
69.65
15.6
22.6 45.42
38.9
41.56
Small
14.07
16.28
18.7
20.9 31.43
30.17
27.93
Large
19.4
14.07
65.7
56.5 23.15
30.93
30.51
Source: Computed from RBI, Handbook of Statistics on the Indian Economy.

Share in Number of
agricultural credit
disbursed
199192

28.79
24.87
46.34

200203

22.12
25.52
52.36

200607

24.69
22.92
52.39

The marginal holdings accounted for 62.8 percent of the total operational
holdings in 1991-92, which increased to 71 percent by 2003. A decline in the number of
accounts of the marginal farmers with an increase in the number of marginal holdings implies
exclusionary nature of the scheduled commercial banks towards disbursing credit to the
marginal farmers. In case of small farmers, their share in the area operated increased during
1991-92 and 2002-03, but their share in agricultural credit remained stagnant around 25
percent. For holding size of 5 acres or more, the share in area operated though declined, the
agriculture credit flow and the number of accounts increased during the nineties. There is
no reason that with increasing commercialization and diversification of Indian agriculture,
the credit requirement of marginal and small farmers would have reduced, thereby justifying
declining flow of agriculture credit. This trend is a reflection of the growing apathy that the
commercial banks, which are dominant players in agriculture credit disbursement, are
showing towards lending to the marginal and small farmers.
2.7. Conclusion
The analysis shows that small and marginal farmers have been observing bias in agriculture
delivery. The reforms period has led declining flow of agriculture credit especially long-tern
credit. The doubling of credit flow programme did boost the flow of credit but situation
changes after 2006-07. The main challenge faced by agricultural credit involves not only
ensuring flow of credit to small and marginal farmers, but designing policies and credit
delivery systems that have relevance in the present context in terms of production and
demand for agricultural products. Such policies have to consider the need for agricultural
credit due to crop diversification. The present multi-agency approach is inadequate to
tackle the pressing need for finance of agricultural extension services too. We need to tackle
the issue of how to channel the

resources of commercial banks in sustainable and viable manner in order to fund the
development of a wide range of allied activities. It is also felt that tenancy laws also hinder
flow of credit to tenant and sharecroppers despite guidelines issued by Reserve Bank of
India 44.
The specific needs of the agricultural sector to financial services demand a broader
systemic approach. Need is to understand the extent of availability and distribution of
productive resources, along with their distribution, legal and social structures governing their
use, cropping patterns, current and emerging technologies and dynamics of rural markets and
so on to gauge the credit requirements. This would improve

the

flow

of

credit

to

agriculture, especially small farmers. A critical determinant for agricultural credit is the
commercialization of subsistence farmers. Development of efficient marketing system would
result in the commercialization of subsistence farmers by providing outlets and incentives
for increased production. Critical issues of rural agricultural infrastructure and institutions
needs to be addressed as credit can only be the facilitator. Investments are required in
irrigation, rural roads and other infrastructure. One argument is that farmers needs to be
provided incentives to

adopt

market

based

solutions

for

input

procurement

and

marketing of output through autonomous cooperatives and other forms of organization.


Farmer clubs is one that requires better- planned approach than present ad hoc based on
targets. One can think of integrating crop and investment credit and scales of finance used at
the district level are reviewed and readjusted in line with the requirements of modern, marketoriented capital intensive agriculture using newer technologies and superior inputs. The rising
cost of production needs to be factored in. The new technologies and production cycles are
high cost and risky proposition for small farmers and market volatility harms them the
most and policies and state role need to take cognisance of these factors. Small farmers have
no protection against natural calamities and most vulnerable. These farmers have limited
ability to manage interest rate risk. Steps like linking interest ceiling on small loans up to
Rs.2.00 lakh to BPLR are
positive, but majority of small farmer require below Rs.10000 loans and so limited limit

benefit accrues to them. Agriculture sector is invariably charged BPLR or higher rates 45.
Most small and marginal farmers lack absorptive capacity both in terms of cost and size of
loans and advances, which are of cost effective size to be handled by banks. It has to be
recognized that business of farming is not just an issue of individual livelihood but is also

critically related to national food security. Therefore farmers must have access to credit. In
Indian agriculture even small and marginal farmers whether owning land or not, are risk
taking entrepreneurs contributing to economic growth. Farmer is an important player in the
financial, labour, inputs and commodity markets, who because of the size of transactions in
the market place does get marginalized. Livelihood diversification can help in greater credit
absorption at lower end of farming community 46. Besides, increased public investment in
agricultural infrastructure, research & extension services are required 47. Need is for
developing post-harvest technologies & marketing facilities that can reduce frequent risk and
losses.
Besides, landless farmers are not in a position to access bank credit although many
banks offered security free loans up to Rs.50000 as per the RBI guidelines issued in
2004, which subsequently were raised to Rs.1.00 lakh in June 2010. The period of distress is
identified with a relatively declining contribution of cooperatives in agricultural credit and
with RRBs not showing substantial increases. This indicates urgent need to ensure increased
access to agricultural credit for small and marginal
farmers 48.

Chapter
3
Agricultural Growth
and
Flow of Credit

3.1.
Introduction
This chapter focuses on the aspect of agricultural growth. It also examines the
magnitude and trend of credit flow to agriculture in this state. While undertaking both
kinds of analysis, an effort is made to examine the situation not only at the macro-level
of the state but also at the district level the latter aspect is subject to the availability of
data at the district level. The subject-matter in this chapter is spread over six sections. The
first section is the introductory one. Section two provides key information on the land use
pattern, land holdings, major crops, etc. Section three provides an analysis of the growth
trend in area, production and productivity over the
1990-2010 period. Section four examines the state of credit delivery to agriculture. Section
five provides an analysis of the performance of Primary Agricultural Co- operative
Societies (PACS) in india and the final section concludes.
3.2. State of Agriculture Sector: A Glance
3.2.1. Land
Holdings

Use

Pattern

and

Land

In terms of geographical area, It occupies 34.27 million hectares area. Being a desert state,
its land use pattern reflects some disturbing features to illustrate which, we provide a
detailed overview in Table 3.1.
Table 3.1: Land use pattern
Land use Pattern
Gross cropped area
Net cropped area
Area sown more than once
Area under non-agricultural use
Barren and uncultivable land
Permanent pastures and other grazing land
Land under miscellaneous tree crops and groves
Cultivable waste land
Fallow land other than current fallow current fallow
Current fallow
Forest
Total geographical area

Area (in million


hectares)
21.06
16.55
4.51
1.78
2.49
1.71
0.14
4.60
2.16
2.30
2.66
34.27

Share (%) in
Total Area
61.45
48.29
13.16
5.19
7.27
4.99
0.41
13.42
6.30
6.71
7.76

Note: Percentage do not add up to 100 because gross cropped area includes the area sown more than
once a year

It may be observed that despite the large area occupied, most of its part remain
unutilised. Even 50 percent of its geographical area is not cultivable the share of the net
cropped area is limited to 48.29 percent only. Similarly, the cropping intensity is very low.
The share of gross cropped area is only 61.45 percent. This is primarily due to the lack of
water and the rainfed nature of agriculture

Table 3.2: Landholding Structure


Farm Size Class
(in Hectares)

No. of
Holdings

% Share

Area (ha)

% Share

< 0.50
0.50-1.00
1.00-2.00
2.00-3.00
3.00-4.00
4.00-5.00
5.00-7.50
7.50-10.00
10.00-20.00
> 20.00
Total

969270
874801
1206755
726739
470388
318230
530549
248578
343112
115053
5803475

16.70
16.07
20.79
12.52
8.11
5.48
9.14
4.28
5.91
1.98
100.00

250357
641746
1739533
1780072
1627291
1420646
3235426
2138826
4656083
3613921
21103901

1.19
3.04
8.24
8.43
7.71
6.73
15.33
10.13
22.06
17.12
100.00

Average
Size of
Holding
0.26
0.73
1.44
2.45
3.46
4.46
6.10
8.60
13.57
31.41
3.64

Source: Agricultural Census

Table 3.2 shows the land holding structure.

It reveals that the average size of

land holdings is 3.64 hectares in this state which is again a manifestation of less fertile land.
The soil structure in most of the state is arid and semi-arid in nature. It is noteworthy that the
small and marginal farmers constitute more than
53.60 percent of the total land holdings but had just 12.5 percent share in total area. On the
other hand, farmers with holding size of 10 hectares plus had a share of 7.9 percent in total
holdings but held 39.20 percent of the total area.

This highly skewed distribution of

land itself is a major barrier to make effective intervention in the advancement of agriculture.
3.2.2. Major Crops and Varieties:
The diversity of land, soil and climate makes the state a distinctly different one in India. In
two major seasons, viz., kharif and rabi, cultivation in the state under normal conditions of
rainfall grow mostly cereals, oil seeds and pulses. However,

prospects of a normal crop year is often marred by intermittent drought as the probability of
every other year turning out to be a drought year has been estimated as high as 0.5. Moreover,
accounts for 70 percent of the total arid and semi-arid zone in India and these arid zones are
concentrated mostly in the western part of the state.
Figure 3.1: Cropping Pattern -Kharif Season
AREA UNDER KHARIF CROPS
60.00

% SHARE

50.00
40.00

1981
1991
1995

30.00

2001
2007

20.00

10.00
0.00

Cereals

Oil seeds

Pulses

Cotton

Others

CROP

Figure 3.2: Cropping Pattern -Rabi Season


Area under Rabi crops

% share

60.00
50.00
1981

40.00

1991
2001

30.00

2007

20.00
10.00
0.00
Cereals

Oil seeds

Pulses Total
year

Others

Figure 3.1 reveals the change in cropping pattern during 1981-2007 period. It is important
to note that cereals as a commodity group accounted for about 60 percent of the area under
cultivation during kharif season. Among cereals, bajra alone accounted for 50 percent of the total
area during kharif season. Between 20 to 30 percent of the area is under the cultivation of
pulses. The category Others include crops such as vegetables, fruits and spices. In the case of
kharif crops, major share of the area under cultivation is occupied by cereals, especially, wheat. In
the order of importance by area, oil seeds come second, which accounted for 40 percent of the
area in 2007.
Figure 3.2 shows the cropping pattern of rabi crops for four time points. The crops are
classified into cereals, pulses, oil seeds and others. The category, others include a vast cross
section of crops including fruits, vegetables, spices and tobacco. It is the greatest advantage that
still allocate a major share of its area under food crops and therefore, market volatility do not
affect the farmers significantly. A notable difference between kharif and rabi crops is that bajra is
the major crop in kharif while wheat takes over other crops in area during the rabi season.

106

Chapter 4
Indebtedness and Demand for Credit among Farmers
Insights from NSSOs 59th Round

4.1. Introduction
This chapter focuses on examining the incidence of indebtedness among farmers. It also aims
at deciphering the demand for credit among these farmers. The analytical inquiry in this
chapter is based on the secondary information provided by the National Sample Survey
Organisation (NSSO). Specifically, this chapter locates the situation of indebtedness among
farmers in a comparative context. Following this, it examines the district-level variation in the
incidence of indebtedness among the farmers
There are five sections in this chapter. The first section is the introductory one and the
second section introduces the specificities of the 59th Round of the National Sample Survey
Organisation (NSSO). The third section locates the nature and magnitude of indebtedness
among major Indian states by way of locating in a comparative perspective. The fourth
section provides an analysis of the district-level variation in the incidence of deprivation.
This section focuses on the aspects of seeking of loan, duration, quantum, purpose, source of
loan and the keeping of security by the farm households. The final section concludes the
emerging observations.
4.2. Specificities of NSSOs 59th Round
National Sample Survey Organisation (NSSO) is the prime government agency in India that
collects information on various facets of the Indian economy. As far as the segment of
agriculture is concerned, it does not focus specifically on this sector as such; rather it collects
the information about employment etc. in this sector as part of its other EmploymentUnemployment surveys. In fact, the government, at the beginning of the millennium, felt a
need for having a comprehensive assessment of the situation of farmers in the country. So,
it directed the NSSO to conduct a Situation Assessment Survey of Farmers (SAS) as
part of its 59th round to be conducted during January- December, 2003.

107

This survey was conducted only in the rural sector of the country. A total of
51,770 households spread over 6,638 villages were surveyed in the Central Sample. In the
State Sample, seven States/UTs, namely, Andhra Pradesh, Chandigarh, Gujarat, Maharashtra,
Meghalaya, Orissa and Tripura participated. The Central Sample covered the rural area of the
whole of the Indian Union except (i) Leh (Ladakh) and Kargil districts of Jammu & Kashmir,
(ii) interior villages of Nagaland situated beyond five kilometres of any bus route and (iii)
villages in Andaman and Nicobar Islands which remain inaccessible throughout the year.
The survey collected a whole range of information about the farming community in
this survey. The specific topics covered are 1) consumer expenditure 2) income and
productive assets 3) farmers indebtedness 4) farming practices and preferences 5)
resource availability 6) farmers awareness of technological developments and 7) access to
modern technology in the field of agriculture. But, for the purposes of this chapter, we limit
our analysis only to the aspect of indebtedness. Being rich in information, this survey
provides both the state and district-level information. So we have utilised this information
appropriately to draw inferences about the state of indebtedness among the farmers in
Rajasthan.
4.3. Nature and Magnitude of Indebtedness across Major Indian States:
It is difficult to undertake farming operations without access to adequate capital at the
farmers end. In fact, the aspect of indebtedness assumes significance as it indicates the
incidence of access to credit among farmers. Different types of financing mechanisms have
evolved over the period of time across Indian states which have influenced the incidence of
access to credit. Such state-level variation is depicted by Figure 4.1. It may be observed that
at all-India level, the incidence of indebtedness is not even 50 percent
it is merely 48.60 percent which implies that not even the half of the farming
community have access to credit for undertaking agricultural operations. It needs to be noted
that there prevails large state-level variations. There are some states such as Andhra Pradesh
and Tamil Nadu where the incidence of indebtedness is as high as 82 percent and 74.50
percent respectively. Some of the other states having more than 60 percent of indebtedness
are Punjab, Kerala and Karnataka.

54.80
Maharashtra

82.00
Andhra Pradesh

53.10
Haryana

Tamil Nadu

52.40
Rajasthan

65.40

51.90
Gujarat

Punjab

50.80
Madhya Pradesh

64.40

50.10
West Bengal

Kerala

48.60
All-India

Karnataka

47.80

40.30

33.40
Himachal Pradesh

Uttar Pradesh

33.00
Bihar

40.20

31.80

20.90

10

Jharkhand

20

Uttaranchal 7.20

30

18.10

40

Assam

50

Jammu

60

Chhattisgarh

70

Orissa

80

61.60

90

74.50

Figure 4.1: Percentage Incidence of Indebtedness across Major Indian States

Source: Based on NSSO (2005) Situation Assessment Survey of Farmers: Indebtedness of Farmer Households,
Report No. 498(59/33/1), National Sample Survey Organisation, Ministry of Statistics and Programme
Implementation, Government of India, New Delhi.

On the contrary, there are some states where the incidence of indebtedness is very
low. The state of Uttaranchal reports the lowest incidence of indebtedness. It is merely 7.20
percent. While looking at the incidence of indebtedness among low-income states, it may be
observed that it is the lowest in the case of Assam (18.10 percent). Other low-income
states having low incidence of indebtedness are Bihar (33 percent), Uttar Pradesh (40.30
percent) and Orissa (47.80 percent). In the case of Rajasthan, the incidence of indebtedness
is found to be 52.40 percent which is marginally above the all-India average of 48.60
percent.
As this macro-level average incidence does not reveal the underlying distributions, the
study has further explored the implicit variations in the average incidence of indebtedness.
First of all, it has examined the incidence of indebtedness across different farm size classes.
Table 4.1 reports the state-wise pattern in this respect. It may be observed that there
prevail disparities among different states as well as different farm sizes. In general, a
relatively large proportion of the less privileged farmers holding smaller land holdings like
marginal and small farmers are found to be under debt. This trend persists across all the major
Indian states. At the same time, a relatively smaller proportion of the farmers having
relatively large land holdings are found to be less indebted. While understanding these
inferences, two aspects need to be kept in mind. First, the farmers with large land holdings
account for a relatively small

proportion of the farming community. Second, their magnitude of credit needs is large. At
the same time, it is also important to consider that the smaller farmers who often have
inadequate income find it difficult to save resources on their own for productive investment in
agriculture. So, they are often dependent on credit for carrying out their agricultural
operations along with meeting other general expenses.
Table 4.1: State-wise Percentage Distribution of Indebtedness, by Farm-size Class
Major States
Andhra Pradesh
Assam
Bihar
Chhattisgarh
Gujarat
Haryana
Himachal Pradesh
Jammu & Kashmir
Jharkhand
Karnataka
Kerala
Madhya Pradesh
Maharashtra
Orissa
Punjab
Rajasthan
Tamil Nadu
Uttar Pradesh
Uttaranchal
West Bengal
All-India

Marginal
55.70
70.60
86.90
44.60
45.70
52.30
76.30
72.90
79.50
50.70
87.70
33.00
36.00
70.30
53.30
43.90
72.60
71.30
72.70
88.70
61.00

Small
21.80
20.80
9.20
30.60
21.70
18.30
15.60
13.70
15.60
22.80
9.10
27.10
26.20
20.60
15.80
19.80
15.40
17.40
21.20
8.50
18.90

Farm-Size Class
S. Medium
Medium
15.10
6.60
8.10
0.50
2.80
0.70
16.90
7.50
18.30
13.20
19.70
8.80
6.30
1.90
12.60
0.90
2.70
0.90
15.90
9.30
2.60
0.50
23.10
13.00
23.30
12.20
7.30
1.70
17.00
11.80
17.80
14.10
9.30
2.20
7.80
3.40
5.90
0.00
2.40
0.40
12.50
6.40

Large
0.70
0.00
0.60
0.40
1.10
0.90
0.00
0.00
1.20
1.20
0.10
3.90
2.40
0.00
2.20
4.50
0.40
0.30
0.00
0.00
1.20

Source: Based on NSSO (2005) Situation Assessment Survey of Farmers: Indebtedness of Farmer
Households, Report No. 498(59/33/1), National Sample Survey Organisation, Ministry of Statistics and
Programme Implementation, Government of India, New Delhi.

Table 4.1 reveals that in West Bengal, out of the total indebted farmers, 88.70
percent are those having marginal land holdings. Similar is the situation in Kerala where
87.70 percent of the total indebted farmers are accounted by marginal farmers. Other states
where the share of marginal farmers in total indebted farmers is more than 70 percent are
Bihar (86.90 percent), Jharkhand (79.50 percent), Himachal Pradesh (76.30 percent), Jammu
& Kashmir (72.90 percent), Uttaranchal (72.70 percent), Tamil Nadu (72.60 percent), Uttar
Pradesh (71.30 percent), Assam (70.60 percent) and Orissa (70.30 percent). The share of
marginal farmers in total indebted farmers is below 50 percent in state such as Gujarat (45.70
percent), Chhattisgarh (44.60 percent), Madhya Pradesh (33 percent) and Maharashtra (36
percent).

There is large gap between the incidences of indebtedness among other


categories of farmers. The share of small farmers in total indebted farmers, at the all- India
level, is only 18.90. However, there are variations across states. The state of Chhattisgarh,
for example, represents a relatively high share (30.60 percent) of small farmers. Some of
other states where small farmers represent a relatively large share of the indebted farmers
are Madhya Pradesh (27.10 percent), Maharashtra (26.20 percent), Karnataka (22.80
percent) and Andhra Pradesh (21.80 percent). Similarly, the share of semi-medium farmers in
total indebted farmers at the all-India level is 12.50 percent. With Maharashtra being at the
top (23.30 percent), the semi-medium farmers account for a considerable proportion of the
indebted farmers in states like Madhya Pradesh (23.10 percent), Haryana (19.70 percent),
Gujarat (18.30 percent), Rajasthan (17.80 percent) and Punjab (17 percent). In the case of
medium and large farmers, the highest proportion of the indebted farmers is found in the case
of Rajasthan. Most of the states have negligible percentage of indebted farmers among large
farm class, except Rajasthan (4.50 percent) and Madhya Pradesh (3.90 percent).
Table 4.2: State-wise Percentage Distribution of Indebtedness, by Social Class
Major
States
Andhra Pradesh
Assam
Bihar
Chhattisgarh
Gujarat
Haryana
Himachal Pradesh
Jammu & Kashmir
Jharkhand
Karnataka
Kerala
Madhya Pradesh
Maharashtra
Orissa
Punjab
Rajasthan
Tamil Nadu
Uttar Pradesh
Uttaranchal
West Bengal
All-India

Social Class

SC
16.80
10.00
17.00
16.70
6.60
21.80
27.80
18.90
15.60
10.80
4.50
18.60
8.60
14.20
26.10
16.50
21.90
25.70
36.40
29.60
18.00

ST
10.80
7.10
2.90
30.80
22.80
0.50
6.70
0.00
23.90
9.80
1.60
15.90
9.30
23.30
0.20
20.80
4.20
1.80
0.00
5.70
10.00

OBC
47.70
21.30
59.80
49.20
36.20
32.60
17.70
4.60
48.00
43.00
49.60
47.80
34.50
44.10
15.80
47.00
72.90
55.70
19.00
7.40
43.90

Others
24.70
61.60
20.40
3.30
34.40
45.10
47.90
76.50
12.50
36.40
44.30
17.60
47.70
18.50
57.90
15.70
1.00
16.80
44.60
57.30
28.10

Source: Based on NSSO (2005) Situation Assessment Survey of Farmers: Indebtedness of Farmer
Households, Report No. 498(59/33/1), National Sample Survey Organisation, Ministry of Statistics and
Programme Implementation, Government of India, New Delhi.

The incidence of disparity in indebtedness by social class across major Indian states is
depicted in Table 4.2. It may be observed that a large percentage of the farmers belonging to
the social class of Other Backward Class (OBC) and Others which may be due to not only
their larger share in farming community but also due to their relatively better access to
different sources of credit. At the all-India level, the share of SC and ST farmers in total
indebted farmers is only 18 percent and 10 percent respectively. However, there are statespecific variations in this respect. The states where more than
20 percent of indebted farmers belong to SC social class are Uttaranchal (36.4 percent), West
Bengal (29.60 percent), Himachal Pradesh (27.80 percent), Punjab (26.10 percent),
Uttar Pradesh (25.70 percent), Tamil Nadu (21.90 percent) and Haryana (21.80 percent).
Incidentally, all these states have a relatively large percentage of SC population. Similarly,
STs account for a significant share of indebted farmers in states like Chhattisgarh (30.80
percent), Jharkhand (23.90 percent), Orissa (23.30 percent), Gujarat (22.80 percent) and
Rajasthan (20.80 percent).
Table 4.3: State-wise Average Amount of Outstanding Loan (in Rs.) per Farmer
Household, by Farm-Size Class
Major States
Andhra Pradesh
Assam
Bihar
Chhattisgarh
Gujarat
Haryana
Himachal Pradesh
Jammu & Kashmir
Jharkhand
Karnataka
Kerala
Madhya Pradesh
Maharashtra
Orissa
Punjab
Rajasthan
Tamil Nadu
Uttar Pradesh
Uttaranchal
West Bengal
All-India

Marginal

Small

42717
1783
11225
35677
18456
38364
16004
3050
5198
29362
69445
15758
24136
12058
38808
32781
42024
15954
1626
11130
21289

33043
907
6220
3916
11976
35300
11133
2128
1928
14559
61122
12467
15890
6898
27543
15264
31514
8628
6435
9572
13762

Farm-Size Class
SemiMedium
Medium
29981
44865
1138
4620
7479
2924
5356
21737
30169
47718
50511
51978
20859
41660
5250
3934
2647
6918
26334
44763
86029
156858
19256
29642
18901
40038
9681
11858
94344
132907
26715
31802
40382
87175
17748
51293
442
0
12329
13684
23456
42532

Large

All

103817
0
69144
7386
84326
93467
0
0
27300
80442
24860
61800
125913
115304
267601
49630
90892
12689
0
0
76232

23965
813
4476
4122
15526
26007
9618
1903
2205
18135
33907
14218
16973
5871
41576
18372
23963
7425
1108
5237
12585

Source: Based on NSSO (2005) Situation Assessment Survey of Farmers: Indebtedness of Farmer
Households, Report No. 498(59/33/1), National Sample Survey Organisation, Ministry of Statistics and
Programme Implementation, Government of India, New Delhi.

The study has estimated the average amount of outstanding loan across farm- size
class so as to capture the depth of indebtedness among farming community in the major states
of India. The emerging statistics are reported in Table 4.3. It may be observed that the more
the land size the more is the amount of debt of the households but the relation of outstanding
debt amount is not linear. At least in case of marginal households, the amount of total loan
outstanding are found to be in larger proportion as per their land sizes in comparison to other
land sizes. In most of the states even the amount of total outstanding of marginal farmers is
greater than at least small farmers who have double the land size. This trend shows that
marginal farmers are highly debt ridden, because of possible low and inadequate income
levels, and are unable to timely repay their loan amount.
Table 4.4: State-wise Average Amount of Outstanding Loan (in Rs.) per Farmer
Household, by Social Class
Major States
Andhra Pradesh
Assam
Bihar
Chhattisgarh
Gujarat
Haryana
Himachal Pradesh
Jammu & Kashmir
Jharkhand
Karnataka
Kerala
Madhya Pradesh
Maharashtra
Orissa
Punjab
Rajasthan
Tamil Nadu
Uttar Pradesh
Uttaranchal
West Bengal
All-India

SC
12720
1141
3161
5386
9175
13341
11427
931
2992
6405
13308
8910
8845
4850
10399
16708
12786
4893
951
4298
7167

ST
12760
391
3619
1545
7981
5308
0
746
11259
10832
4812
6379
2360
12018
21023
6706
0
2349
5506

Social Class
OBC
23697
598
4010
5944
13800
26226
16405
1029
3181
17210
33116
15628
18205
7845
21862
22009
27355
7280
4184
5816
13489

Others
37802
971
6814
8816
26333
31548
7662
2346
3304
24901
38013
25411
21417
10439
66147
18538
23782
11290
914
6118
18118

All
23965
813
4476
4122
15526
26007
9618
1903
2205
18135
33907
14218
16973
5871
41576
18372
23963
7425
1108
5237
12585

Source: Based on NSSO (2005) Situation Assessment Survey of Farmers: Indebtedness of Farmer
Households, Report No. 498(59/33/1), National Sample Survey Organisation, Ministry of Statistics and
Programme Implementation, Government of India, New Delhi.

As a prime aim of the study has been to examine the incidence of incidence of social
class disparity in the magnitude of indebtedness across major Indian states, the emerging
disparities are reported in Table 4.4. It may be observed that at the all-India

level, the average amount of outstanding loan is reported by the ST farmers (Rs. 5506) which
indicates nothing but the inadequate credit access of this social class. Similar is the case
with SC farmers who have reported, on an average, an outstanding loan of Rs.
7167. The social class of OBCs have relatively taken relatively high amounts of loan. The
OBCs have an average outstanding of Rs. 13489 per household whereas the same has been
Rs. 18,118 for the social class of others.
There prevail state-level variations. Few states where SC farm households have an
outstanding loan of more than Rs. 10,000 are Rajasthan, Haryana, Kerala, Tamil Nadu,
Andhra Pradesh and Himachal Pradesh. The overall situation and awareness levels of
SC class in these states is better comparatively to other states. States where ST farm
households have an average outstanding loan of Rs. 10,000 and more are Tamil Nadu,
Rajasthan, Karnataka and Kerala. The OBC farm households have an outstanding loan of
more than Rs. 20,000 in the states of Tamil Nadu, Haryana, Andha Pradesh, Rajasthan and
Punjab while in states like Assam and Jammu & Kashmir, the average amount of outstanding
loan for this social class has been very low. It is noteworthy that the social class of Others had
the highest average outstanding loans in states like Punjab (Rs. 66147), Kerala (Rs. 38013)
and Andhra Pradesh (Rs. 37,802). This social class had the lowest average outstanding loan
in the states of Uttaranchal (Rs. 914), Assam (Rs.
971), Jammu & Kashmir (Rs. 2346) and Jharkhand (Rs. 3304).
Table 4.5: State-wise Percentage Distribution of Outstanding Loan taken by Farm
Households, by Source
Major States
Govt.
Andhra Pradesh
Assam
Bihar
Chhattisgarh
Gujarat
Haryana
Himachal
Pradesh&
Jammu
Kashmir
Jharkhand
Karnataka
Kerala
Madhya Pradesh
Maharashtra

1.00
7.00
2.20
1.30
0.50
1.10
6.10
13.10
3.90
1.90
4.90
1.90
1.20

Source of
Loan
CoCommerci Money
Relative
operativ
Traders
Others
al
s
e
Bank
lender
/Friends
Society
10.40
20.00
53.40
4.80
5.30
5.00
2.70
27.80
15.50
12.00
24.70
10.40
2.50
37.00
32.80
1.10
12.80
11.80
20.60
50.50
13.00
4.20
6.30
4.20
41.80
27.20
6.50
4.40
17.70
1.90
23.90
42.60
24.10
3.10
3.40
1.90
11.60
47.60
7.20
5.50
17.00
5.00
0.20
54.30
1.10
15.50
15.50
0.20
4.50
55.70
19.00
1.70
13.60
1.60
16.90
50.10
20.00
1.90
6.80
2.50
28.30
49.10
7.40
1.70
6.60
1.90
16.90
38.10
22.60
9.00
10.10
1.30
48.50
34.10
6.80
0.80
5.90
2.70

Source of Loan
Major States
Orissa
Punjab
Rajasthan
Tamil Nadu
Uttar Pradesh
Uttaranchal
West Bengal
All-India

Govt.
13.00
1.90
1.30
2.00
2.40
31.50
10.30
2.50

Cooperative
Society
18.10
17.60
5.90
23.30
6.70
4.80
19.20
19.60

Commercial
Bank

Moneylenders

Traders

Relatives
/Friends

Others

43.70
28.40
27.00
28.10
51.20
39.80
28.50
35.60

14.80
36.30
36.50
39.70
19.10
5.90
13.00
25.70

0.80
8.20
19.20
0.40
2.90
1.70
10.70
5.20

8.40
6.30
6.90
5.20
13.80
14.90
15.40
8.50

1.10
1.30
3.20
1.20
3.90
1.40
3.00
3.00

Source: Based on NSSO (2005) Situation Assessment Survey of Farmers: Indebtedness of Farmer
Households, Report No. 498(59/33/1), National Sample Survey Organisation, Ministry of Statistics and
Programme Implementation, Government of India, New Delhi.

Table 4.5 reports the percentage distribution of outstanding loan by source of loan.
Prime sources of credit considered here are related to government, co-operative society,
banks and unorganised sources such as moneylenders, traders, relatives/friends and
others. It may be observed that at the all-India level, the commercial banks have been the
major source of credit to the farming community. They represent 35.60 percent share in the
overall providers of loan to this sector. Another important institutional source has been the
co-operative societies which have been the source of loan for 19.60 percent of the
outstanding

loan.

Other

government organisations accounted for a share of 2.5 percent.

This implies that a total 57.7 percent of the agricultural credit is provided by the institutional
sources. Given the fact that the credit needs of the agricultural sector are large, the
farmers have to rely on other sources as well for meeting their credit needs. It is observed
that money-lenders remain an important source of credit as they fulfil 25.70 percent of the
credit needs. It is said that the interest rates charged by the money-lenders are usurious and
the farmers often remain trapped in inter-locked agrarian markets. Relative/friends have a
share of 8.5 percent while traders provide around 5.2 percent of the agricultural loans.
At the state level, major states where banks are providing most of the loans are
Jharkhand (55.70%), Jammu & Kashmir (54.30%), Karnataka, Chhatisgarh, Kerala and
Himachal Pradesh while their share is quite low in states like, Andhra Pradesh (20%),
Rajasthan (27%), Assam (27.1%), Gujarat (27.2%) and Punjab (28.40 %). In all of the above
states except Gujarat moneylenders and other non institutional sources are the

largest source of agricultural credit which shows lack of proper institutional credit
structure of agriculture.
Table 4.6: State-wise Percentage Distribution of Outstanding Loan taken by Farm
Households, by Purpose
Major States
Andhra
Pradesh
Assam
Bihar
Chhattisgarh
Gujarat
Haryana
Himachal
Pradesh
Jammu &
Kashmir
Jharkhand
Karnataka
Kerala
Madhya
Pradesh
Maharashtra
Orissa
Punjab
Rajasthan
Tamil Nadu
Uttar
Pradesh
Uttaranchal
West Bengal
All-India

Farm
Expenditure

Non-farm Expenditure

Capital

Other

Business

Consumption

Marriage /
Ceremonies

Education

Medical

Other

23.40

38.10

3.20

11.50

9.60

1.40

2.40

10.50

16.60
30.80
40.30
20.30
36.00

6.70
8.60
30.00
50.30
26.20

16.20
7.60
8.20
3.90
6.80

12.40
6.40
6.70
6.30
4.80

11.80
22.90
6.40
10.20
14.00

0.10
2.30
0.30
0.50
0.00

1.50
10.20
3.40
3.00
2.00

34.80
11.20
4.70
5.60
10.30

9.40

10.10

29.00

6.60

10.20

0.90

2.90

30.90

26.00

3.20

24.10

18.30

9.30

0.00

2.00

17.10

27.20
30.70
11.00

5.30
37.50
10.40

24.80
9.80
22.80

10.50
5.60
10.20

9.80
7.40
11.20

0.00
0.60
1.40

0.90
0.20
2.50

21.60
8.10
30.50

47.00

21.30

1.40

9.60

14.40

0.10

3.60

2.70

37.90
28.90
26.40
37.50
24.30

37.50
24.40
36.00
19.70
25.10

4.80
11.50
4.40
2.20
5.50

4.20
11.40
8.50
13.80
13.10

4.90
14.00
10.20
17.60
8.70

0.90
0.10
0.00
0.80
2.60

1.50
2.90
2.60
3.90
4.10

8.30
6.90
12.00
4.40
16.60

40.30

20.60

7.00

6.80

11.80

0.20

6.10

7.10

18.40
24.40
30.60

15.80
21.30
27.80

17.30
10.30
6.70

9.20
7.20
8.80

7.40
11.10
11.10

0.00
0.50
0.80

2.20
5.10
3.30

29.70
20.10
10.80

Source: Based on NSSO (2005) Situation Assessment Survey of Farmers: Indebtedness of Farmer
Households, Report No. 498(59/33/1), National Sample Survey Organisation, Ministry of Statistics and
Programme Implementation, Government of India, New Delhi.

Cooperatives are strong in states like Maharashtra where they provide 48.5 percent of
total agricultural credit and Gujarat where such figure is 41.8 percent. They fare really poor in
states like Jammu & Kashmir, Bihar, Assam, Jharkhand, Uttaranchal, Rajasthan and Utter
Pradesh, where there share in total agricultural credit ranges between just 0.2 6.7 percent.
Unorganised sources like moneylenders have a dominant position in states like Andhra
Pradesh where as much as 53.4 percent of total agricultural credit requirement is met
through them, in Tamil Nadu there share is

39.70%, Rajasthan 36.5%, Punjab 36.3% and Bihar 32.8 %. Other unorganised sources also
play an important role in different sources which shows that these sources together with
moneylenders remain important in credit flow.
The study further examines the purposes for which the farming community has taken
loan. The emerging inferences are reported in Table 4.6. It classifies all the key purposes in
two major categories, viz. Farm Expenditures and Non Farm Expenditures. Farm Expenditure
is further divided into Capital and other type of expenditure and the non-farm expenditure is
bifurcated into business, consumption, marriage/ceremonies, education, medical and other
expenses. All India figures reveal that total farm expenditure account for 58.4 percent of the
total loan taken by the farming community and out of which, 30.60 percent is spent on capital
building and 27.80 percent is utilised for meeting the expenses on purchasing agricultural
inputs. Similarly, out of the total non-farm expenditure of 41.6 percent, a major proportion is
spent on marriage/ceremonies (11.10 percent), other expenses (10.8 percent) and consumption
purposes (8.80 percent). A significant proportion is also spent on side business (6.70 percent).
States where a relatively large amount is spent on strengthening capital base are
Madhya Pradesh (47 percent), Chhattisgarh (41.3 percent), Uttar Pradesh (41.3 percent),
Maharashtra (37.9 percent) and Rajasthan (37.5 percent). The states where a large sum of
money is spent on non-capital expenses are Gujarat (50.3 percent), Andhra Pradesh (38.1
percent), Karnataka (37.5 percent), Maharashtra (37.5 percent) and Punjab (36 percent).
Incidentally, all these states produce a major share of agricultural output.
Under non-farm expenses, states where a large share of total loan amount is
spent on marriage/ceremonies are Bihar (22.9 percent), Rajasthan (17.6 percent), Madhya
Pradesh (14.4 percent), Orissa (14 percent) and Haryana (14 percent). Maharashtra is the only
state spending less than 5 percent on such expenses. States where a large proportion of loan
amount is spent on consumption purposes are Jammu
& Kashmir (18.3 percent), Rajasthan (13.8 percent), Tamil Nadu (13.1 percent) and Assam
(12.4 percent). Again Maharashtra is the only state that has less than 5 percent (4.2 percent)
money being spent on consumption. In states like Himachal Pradesh farm

community spend a large loan amount in establishing different businesses, the figure for the
state is 29 percent of all loan amount. Other such states are Jharkhand (24.8 percent),
Jammu & Kashmir (24.1 percent), Kerala (22.8 percent), Uttaranchal (17.3 percent) and
Assam (16.2 percent), which shows that farm household people are diversifying and willing
to take up other professions apart from agriculture.

Money spent on different business is

very little in states like Madhya Pradesh, Rajasthan and Andhra Pradesh showing lack of
initiatives taken by or lack of other opportunities available to farm people in these states.
Amount spent on medical purposes is significant in Bihar (10.2 percent). Other types of
non-farm expenses have a major share in states like Assam (34.8 percent), Himachal Pradesh
(30.9 percent), Kerala (30.5 percent) and Jharkhand (21.6 percent).

14

Chapter 7
Conclusions
7.1. Introduction
This study has delved into the question of credit availability and access among farmers. It
has specifically focused on the disadvantageous sections of the farming community such as
marginal, small, tribal and dalit farmers. The analytical exercise has examined both the
secondary and primary sources of information. Secondary analysis covered a large part of the
study. Similarly, the analysis of primary data informed about the ground realities in access
to agricultural credit.
7.2. Major Findings
Out of the seven chapters of the study, the first chapter being the introductory
elaborated on the nature and scope of the study outlining different topics worked upon by the
study. It has provided a detailed review of available literature on agricultural finance in India.
In fact, this detailed review of literature on agricultural finance reveals that despite the
availability of a plethora of research on agricultural finance, there has remained a dearth of
studies that have focused exclusively on the disadvantageous sections of the Indian
peasantry. There have been very few studies who have addressed the issues related to credit
needs of the marginal, small, tribal and dalit farmers. In fact, this class of the farmers
account for a large set of the Indian farming class but they do not have any source of
capital. Without capital, they are unable to take risk in the conditions of uncertain return
on small fields. This chapter asserts the significance of credit
improving

the

performance

of

agricultural

as

crucial

input

in

output. Commercial banks and other

government agencies have brought various innovative financing schemes like Kisan Credit
Card (KCC) to deliver the credit to the farmers. Following this review of literature, this
chapter specifies the key objectives. Following which, we discuss the analytical approach
and the data base used by this study where an elaboration of both the secondary and primary
data sources is made.

The second chapter focuses on the aspect of capital formation in agriculture and the
state of credit flow to agriculture. Along with discussing the macro-level picture across India,
this chapter makes an attempt to discuss the situation. It finds that because of inadequate flow
of credit to agriculture, there is a shrinking of capital formation during recent times. It is also
observed that the private sector investment is much higher than public investment in
agriculture and this investment is mainly of capital building nature. But this investment has a
very limited role in improving production capacities. Credit flow to agriculture has
increased to multiple times over the years through the institutional sources but at the
same time non-institutional credit sources like moneylender are again becoming prominent
which raises concern due to the usurious rate of interest and unethical terms. It is observed
that as per the guidelines of RBI, marginal and dalit farmers are included in priority sector
lending, but still they lack a proper and timely reach. The nationalization of banks definitely
improved inflow of credit to agriculture and it is observed by increasing percentages of
outstanding credit to agriculture by commercial banks.
The third chapter provides a detailed analysis of the agricultural performance along
with having an overview of the magnitude of credit supply to the agriculture sector. It is
observed that being the desert state could devote a relatively smaller proportion of its area to
agriculture. A large proportion of its gross cropped area suffers from inadequate and erratic
rainfall conditions. Despite this, it has grown in terms of the production of cereals, pulses and
oilseeds. There are district-level variations which again are influenced by various agroclimatic conditions. Similarly, the study has examined the provision of credit by the
institutional agencies such as commercial banks, regional rural banks and the co-operative
societies. It is observed that all these agencies have provided both crop loan and the term
loan. In crop-loan, the contribution of all the agencies is significant but regarding term loan,
the dominant position is taken by the commercial banks who could finance the long term
loans primarily due to their large resource endowments. This chapter have also examined the
performance of PACS with a macro perspective.

7.3. Recommendations
In light of the above findings, the study makes the following recommendations to step- up
the access to credit among marginal, small, tribal and dalit farmers.
1. The farmers from the disadvantageous sections of the farming community experience
difficulties in gaining access to credit. It is primarily due to their lack of awareness
about various government schemes. So, the state should have due concern to this
aspect. In fact, some sort of incentive mechanism may be introduced for the bank
whose consumer set is constituted of more than 50 percent of the marginal, small,
tribal and dalit farmers.
2.

The tribal areas have less availability of the banking facilities. An effort should be
made to establish new banks in these areas. In fact, the availability of banks in the
village is found to be having large impact on introducing the banking habits among
the poor farmers.

3. The option of microfinance should be adopted and streamlined to alleviate the plight
of the marginal, small, tribal and dalit farmers. They should be linked effectively to
the Self Help Groups (SHGs). Most often, it is the lack of knowledge about the utility
of the SHGs that refrains this class of farmers in joining the SHGs. So, these
farmers should be made aware of the benefits of the SHGs through various
documentaries. The access to SHGs would also help the farmers especially Dalit and
Tribal farmers in enhancing their self-esteem and self- confidence at an individual
level and it would help them in become more empowered economically.
4.

Strong financial institutions should be developed for rapid financial inclusion of


marginal, small, dalit and tribal farmers. So far, the banking system has catered the
financial needs of the medium and large farmers and the prime concern of credit
delivery has been the upliftment of agriculture. But, such approach has been myopic.
Given the dominance of marginal and small farmers in overall land structure, it would
be inappropriate to leave such a vast set of farmers with inadequate attention. If the
prime goal is to enhance the growth rate of agriculture, then there is no other option
except taking care of the credit needs of the marginal, small, tribal and dalit farmers.
Once these farmers have adequate access to credit, the performance of agriculture is
bound to improve.

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