Agricultural Credit Structure and Flow of Agricultural Credit in India
Agriculture is the backbone of the Indian economy, and timely availability of credit is essential for the development and sustainability of the agricultural sector. Agricultural credit helps farmers to purchase seeds, fertilizers, equipment, and to manage other inputs needed for cultivation. The Government of India has developed a structured agricultural credit system to ensure that credit reaches even the smallest and marginal farmers.
1. Agricultural Credit Structure in India
The agricultural credit structure in India is broadly divided into two types:
A. Institutional Sources of Agricultural Credit
These are organized financial institutions regulated by the RBI, NABARD, or the government. They include:
i. Commercial Banks
- Provide short-term, medium-term, and long-term loans.
- Largest contributors to agricultural credit in India.
- Include public sector banks, private sector banks, and regional rural banks.
- Provide credit under schemes like Kisan Credit Card (KCC).
ii. Cooperative Credit Institutions
These form a three-tier structure:
| Tier | Institution | Function |
|---|---|---|
| 1st Tier | Primary Agricultural Credit Societies (PACS) | Operate at village level |
| 2nd Tier | District Central Cooperative Banks (DCCBs) | Operate at district level |
| 3rd Tier | State Cooperative Banks (SCBs) | Operate at state level |
- Co-operatives provide short-term and medium-term credit.
- They are especially useful in rural and remote areas where banks may not be present.
iii. Regional Rural Banks (RRBs)
- Sponsored by commercial banks but focus on rural areas.
- Provide small loans to farmers, artisans, and rural poor.
iv. National Bank for Agriculture and Rural Development (NABARD)
- Apex institution for agricultural and rural development.
- Re-finances loans given by cooperative banks and RRBs.
- Also supports rural infrastructure, warehousing, and irrigation projects.
B. Non-Institutional Sources
Though declining, many farmers still depend on:
- Moneylenders
- Traders and commission agents
- Friends and relatives
These sources often charge high interest and lead to debt traps.
2. Types of Agricultural Credit
| Type of Loan | Purpose |
|---|---|
| Short-Term Credit | For purchasing seeds, fertilizers, pesticides (loan duration: up to 15 months) |
| Medium-Term Credit | For buying livestock, pumpsets, small equipment (loan duration: 15 months to 5 years) |
| Long-Term Credit | For tractors, land development, irrigation (loan duration: more than 5 years) |
3. Flow of Agricultural Credit in India
The flow of agricultural credit refers to the total volume of credit disbursed to the agriculture sector.
A. Growth of Agricultural Credit Over Years
| Year | Agricultural Credit Disbursed (approx) |
|---|---|
| 2004-05 | ₹1.25 lakh crore |
| 2010-11 | ₹4.46 lakh crore |
| 2016-17 | ₹10.66 lakh crore |
| 2021-22 | ₹15.75 lakh crore |
| 2023-24 (Target) | ₹20.00 lakh crore |
- More than 75% of agricultural credit now comes from commercial banks.
- Despite growth, marginal and small farmers get only around 40% of institutional credit.
B. Credit-Deposit Ratio (CDR)
- In rural areas, the CDR is often less than 50%, indicating low disbursal compared to deposits.
- Some states like Punjab, Tamil Nadu have high agricultural credit, while Bihar, Odisha, and North-Eastern states lag behind.
4. Government Initiatives to Boost Agricultural Credit
A. Kisan Credit Card (KCC) Scheme
- Introduced in 1998 to provide hassle-free and timely credit to farmers.
- Allows withdrawal of funds for crop needs and interest subvention on timely repayment.
- Over 25 crore KCCs have been issued so far.
B. Interest Subvention Scheme
- Government provides 2% interest subvention to farmers for short-term loans up to ₹3 lakh.
- Additional 3% subvention is given on timely repayment, making effective interest rate just 4%.
C. Priority Sector Lending (PSL)
- RBI mandates that 40% of bank loans be given to priority sectors, including agriculture.
- Ensures banks provide loans to farmers at concessional rates.
D. Agricultural Infrastructure Fund (AIF)
- Aims to provide ₹1 lakh crore financing for development of cold storage, warehouses, and processing units.
5. Challenges in Agricultural Credit
- Unequal Access: Large farmers receive a major share, while marginal farmers often lack collateral.
- Regional Disparities: States like Punjab, Maharashtra get more credit than states like Bihar, Assam.
- Dependence on Informal Sources: Despite growth in institutional credit, many farmers still rely on moneylenders.
- Loan Waivers: Politically driven waivers can affect repayment culture and bank viability.
- Crop Loan Misuse: Some loans taken for agriculture are diverted for non-agricultural uses.
6. Suggestions for Improvement
- Encourage digital KCC, Aadhaar-linked disbursals, and mobile banking in rural areas.
- Strengthen PACS and cooperative banks with training and computerization.
- Promote Self-Help Groups (SHGs) and Joint Liability Groups (JLGs) to access credit without collateral.
- Improve financial literacy among rural farmers.
- Focus on infrastructure investment to reduce credit risk and improve returns from agriculture.
Conclusion
Agricultural credit in India has expanded significantly, but inequities in access, regional imbalances, and dependence on informal sources remain major concerns. A more inclusive, transparent, and technology-driven credit system is needed to support India’s farmers, especially the small and marginal ones, to enhance productivity, sustainability, and rural incomes.