Although farm credit by commercial, cooperative, and regional rural banks has registered double-digit growth and surpassed targets during the last decade, there is concern over growing regional imbalances in disbursements. Credit flows are also skewed towards crop production without pushing infrastructure creation that is vital for boosting agricultural growth. There are also apprehensions that a part of these credit flows are being diverted to non-agricultural activities. For such reasons, indications are that the farm credit target for FY25 is likely to be fixed at a relatively lower level than `24.84 trillion achieved in FY24. To redress the more important problem of regional imbalances, Ramesh Chand, member of Niti Aayog, told FE that a criterion must be established for allocating farm credit to state governments based on their respective farm outputs — such as 20% of the crop value or 40% of input value including wages — to ensure that short-term crop loans are not concentrated only in a few states in the country. Chand’s suggestions deserve attention although it is far from clear how they can be implemented by the government. After all, this is not an era of planning and market forces increasingly determine credit allocation even to a priority sector like agriculture. Niti Aayog’s advice is only indicative and not binding unlike the erstwhile Planning Commission that could decisively influence allocations on the basis of specific criteria. For perspective, southern states — Andhra Pradesh, Telangana, Tamil Nadu, Karnataka, and Kerala — garnered half of the credit disbursements in FY24 although they accounted for only 17% of the gross cropped area. In sharp contrast, the vanguard agrarian states in the north — Punjab, Haryana, Rajasthan, Jammu and Kashmir, and Himachal Pradesh — absorbed only 15% of credit flows despite having 20% of the gross cropped area. The South’s advantage stems from higher bank penetration and better credit absorption capacity besides farmers opting for more commercial crops. Also ReadRevisit tax, expenditure policies Although the government cannot force the commercial, cooperative, and regional rural banks to ensure a more regionally balanced flow of farm credit, there are steps that can certainly be taken to improve the credit culture, especially in the eastern and northeastern regions, by providing collateral in terms of social guarantee or specialised funds and insurance products. The National Bank for Agriculture and Rural Development is working with banks in this regard. There is also the lack of land records, especially for sharecroppers and tenant farmers. State governments must update these land records in a time-bound manner to improve credit off-take. Other targeted interventions include ensuring that small and marginal farmers — who account for 89.4% of farm households owning less than 2 hectares of land — have more access to credit for growing fruits and vegetables, fisheries, poultry, dairy, etc. to boost their incomes manifold. These activities get only 11% of farm credit although they account for a substantial share of gross value added. The upshot is that while the double-digit growth of farm credit is impressive, this achievement is clouded by widening regional imbalances. Instead of setting a lower credit target for FY25, policy must ensure that timely and affordable credit is used more for infrastructure and checking any diversion to non-agricultural activities. This will indeed be a force multiplier for higher agricultural growth, which is expected to rebound to its earlier trajectory of 5% — registered during the seven years before last fiscal — in FY25.
