Agro Money

Role of Agriculture Credit

Agriculture plays a crucial role in the development of the Indian economy. It accounts for about 19 per cent of GDP and about two thirds of the population is dependent on the sector. The importance of farm credit as a critical input to agriculture is reinforced by the unique role of Indian agriculture in the macroeconomic framework and its role in poverty alleviation. Agricultural finance is a subset of rural finance dedicated to financing agricultural related activities such as input supply, production, distribution, wholesale, processing and marketing. Financial service providers face distinct challenges when dealing with this sector. For example, the seasonal nature of production and the dependence on biological processes and natural resources leaves producers subject to events beyond their control such as droughts, floods or diseases. The modern agriculture has increased the use of inputs specially for seed, fertilizers, irrigational water, machineries, implements etc. which has increased demand for agricultural credit. The adoption of modern technology, which is capital intensive, has commercialized agricultural production in India. Besides, the farmer's income is seasonal while his working expenses are spread over time. In addition, farmer's inadequate savings require the uses of more credit to meet the increasing capital requirements. Furthermore, credit is a unique resource, since it provides the opportunity to use additional inputs and capital items now and to pay for them from future earnings.

The rural population in India suffers from a great deal of indebtedness and is subject to exploitation in the credit market due to high interest rates and the lack of convenient access to credit. Rural households need credit for investing in agriculture and smoothening out seasonal fluctuations in earnings. Since cash flows and savings in rural areas for the majority of households are small, rural households typically tend to rely on credit for other consumption needs like education, food, housing, household functions, etc. Rural households need access to financial institutions that can provide them with credit at lower rates and at reasonable terms than the traditional money-lender and thereby help them avoid debt-traps that are common in rural India. Timely and adequate agricultural credit is important for increase in fixed and working capital for farmers. In order to provide sufficient credit to the farmers, many institutional and non-institutional agencies are working. Under institutional agencies-cooperative, commercial, regional rural banks and different Government organizations are supplying credit to the needy farmers on priority basis.

Status of Agriculture Credit

Credit in conjunction with modern agricultural technologies has ushered agricultural development across Indian regions. The liberal credit supply by the lending institutions enabled rapid infrastructural growth across Indian regions and thereby improved the farm level credit absorption capacity. Although credit has played vital role in agricultural development yet regional and farm-category wise disparity has also taken place. Infact, some of the states with better natural resource base have progressed well while some others lagged far behind. Like wise, some farmers with better resource endowments and access to financial and other institutions have marched faster while others could not do so. Furthermore, multiplicity of lending institutions together with the liberal deployment of credit through various on going schemes including micro-financing saved rural dwellers from the clutches of money lenders. Yet, non-institutional credit agents still survive as they follow the canons of financing.

Strategy to improve Agriculture Credit

The achievement of targets in the agricultural sector which covers production of food and essential raw material like cotton, Jute and oilseeds, ought not to be allowed to suffer for want of adequate credit has, however, to be related to specific items of productive work rates of interest has, therefore, to be considered as an integral part of the Plan. For providing these facilities all the existing agencies e.g. money lenders, commercial banks, co- operatives and the State have to be integrated and harnessed to a common purpose. Such a comprehensive approach is essential for ensuring the best use of all the available resources of the nation.