Digital push. Preparing ground afresh for agri credit
- A critical node to sustain growth of creating new digital products for rural economy is increasing investments in agriculture.
- The investment rate in agriculture (ratio of gross capital formation in agriculture to GDP-Agri) stood at 12 % in 2000-2001 and increased to 15.9 % in 2020-21.
Agri credit
- Agri credit refers to one of several credit vehicles used to finance agricultural transactions such as a loan, note, bill of exchange, or a banker''s acceptance.
- It can be classified into three major types: Short-term, medium-term and long-term credit.
Importance of Agri credit
- Enhances the productivity of crops in developing countries.
- Allows usage of advanced technologies to enhance farm productivity.
- Essential for establishing sustainable and profitable farming systems.
- Important determinant of value-added in agriculture.
Because of above reason, the demand for Agri-credit is not just among small farmers, but also among medium and large farmers as well.
Problem in the current system
- Partial regional distribution of agriculture credit
- The South, which accounts for 18 % of the Gross Cropped Area (GCA), takes up almost 45 % of the total agriculture credit disbursed in the country.
- Central, Eastern and North-East regions account for 43 % of the GCA but takes only 22 % of agriculture credit.
- Various factors influence credit uptake across geographies.
- Irrigated areas attract more agriculture credit.
- While deciding the location of branches, banks prefer areas with availability of irrigation and reliable rainfall patterns.
- Due to this pattern, Agri credit will be limited to farmers from limited areas.
- Farmers getting agricultural credit are not using it for the intended purpose.
- 64% of the credit is used as proposed (in the agricultural sector) while 25% is used for their personal requirements, and 9% is used to run a part-time business.
Looking forward
- The government should revise agricultural credit policies and make the procedures for providing credit to farmers easier.
- The government should categorize credit schemes for agriculture and business separately.
- Improvement of the rural credit system will be beneficial for the country and farmers.
- Use digitalisation and digital products to improve the efficiency of credit delivery.
- An alternate channel like reconfigured Direct Benefit Transfer (DBT) can deliver subsidies to farmers while restructuring/write-off should be an ad hoc option.
- Innovations in Agri credit systems by various institutions are much important.
- Fintech-based credit inclusion has huge potential and can be the most effective catalyst to meet the credit needs of rural areas.
Digitisation of agriculture credit has huge potential for value creation and expansion of credit. With improving digital Agri credit, the incentives can be optimised. It will help in improving the condition of Indian farmers. And with improvement in this sector, it will be beneficial for national priorities such as sustainable agriculture.
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