MUMBAI: Loans to farmers are not driving the rise in agricultural credit, a study by economists R Ramakumar and Pallavi Chavan shows. Instead, the major beneficiaries in the revival of farm credit in this decade are agri-businesses and corporates involved in agriculture, the authors say. This is because the definition of agricultural credit has been expanded to include these businesses.
"The definition now includes loans to corporate and agri-business institutions as well as storage equipment in cities. It also includes loans for commercial and export-oriented agriculture," says Ramakumar, an economist with the Tata Institute of Social Sciences, Mumbai.
The growth in agricultural credit has also been fuelled by a rise in indirect loans, the study says. Direct loans are given to farmers while indirect loans are given to institutions indirectly involved in agricultural production.
Significantly, the share of credit to small and marginal farmers has dropped dramatically across the country, the study shows. Instead, loans of Rs 1 crore and above are driving the revival of agricultural credit.
The share of direct agricultural loans worth less than Rs 25,000 to marginal farmers from scheduled commercial banks has fallen sharply—from almost 23% in 2005 to just 4.3% in 2013. On the other hand, the share of direct agricultural loans worth over Rs 1 crore has risen from 7.5% in 2005 to 10% in 2013.
"The 1990s were the lost decade in rural banking. There was large-scale closure of commercial banks in rural areas," says Ramakumar. Since 2000, there has been a growth of agricultural credit, but a major part of this growth is illusory, he says. "It is driven by the expansion of funding to corporate and agri-business institutions involved in agriculture, high-value loans and credit from urban and metropolitan branches," he says.
Report 11: The original version of this story appeared in The Times of India on 12 Apr 2015
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