Budget may raise farm credit, but more boost needed for agriculture

The government will likely raise farm credit target to about Rs 19 lakh crore in Budget 2021-22

Thousands of small and marginal farmers in Maharashtra are trapped in a vicious cycle of debt and have no option but to continue farming despite it being rendered financially unviable over the years. Representational pic

The government will likely raise farm credit target to about ₹19 lakh crore in Budget 2021-22, to be presented on February 1, sources said earlier this week. For the current fiscal, the government has set a farm credit target of ₹15 lakh crore, which it is expected to exceed.

The government has been increasing the credit target for the farm sector every year and this time, too, the target is likely to be raised, the sources said.

Credit worth ₹11.68 lakh crore was given to farmers in 2017-18, much higher than the ₹10 lakh crore target set for that year.

Similarly, crop loans worth ₹10.66 lakh crore were disbursed in the 2016-17 fiscal, higher than the target of ₹9 lakh crore.

Credit is a critical input in achieving higher farm output. Institutional credit also helps delink farmers from non-institutional sources, where they are compelled to borrow at usurious rates of interest.

Normally, farm loans attract an interest rate of 9 per cent. However, the government provides interest subvention to make available short-term farm credit at an affordable rate. It provides a 2 per cent interest subsidy to ensure that farmers get short-term farm loans of up to ₹3 lakh at an effective rate of 7 per cent per annum.

Farmers who repay loans promptly also get an additional incentive of 3 per cent, making the effective interest rate 4 per cent.

New strategies

Apart from raising the credit target, the Budget should adopt a bold approach if it wants to achieve the dual goal of raising incomes for smallholder farmers and strengthening the sector’s competitiveness, according to one expert.

The Budget should lay out strategies that “promote adoption of technologies, encourages data-driven solutions for intelligent farming and market connect, empower farmer producer organisations and enables investment in research and development”, TR Kesavan, chairman, FICCI National Agriculture Committee, wrote in a column for the Financial Express newspaper.

Such an approach will reduce input costs for farmers and cut down wastage, he wrote.

R&D investment in agriculture in India is around 0.3 per cent of agricultural GDP, a minuscule figure compared to developed countries, Kesavan wrote.

Secondly, investment in technologies – effective, user-friendly and ones that bring customised solutions to the needs of medium and small landholding farmers – must be ramped up considerably, he wrote.

Thirdly, the government should focus on strengthening agri statistics to reduce information arbitrage on data for sowing, crop condition, prices and other vital parameters. “Use of agri-stack built on a foundation of farmers’ database can bring instant access of disruptive innovations at their doorstep and will lead to intelligence driven decision making,” he said.

Lastly, Kesavan said that new, innovative models of consolidation are important, considering that cost per unit with small land holdings is high and production output is low.