Agro-Credit

Agri credit is an essential input for agriculture to improve productivity. Access to institutional credit enables the farmer to enhance productivity by investing in machinery, purchasing variable inputs like fertilizers, quality seeds, and manure, and providing funds until the farmer receives payment from the sale of produce.

Every 1% increase in agricultural credit produces a 0.29% increase in agricultural GDP, consequently aiding in the increased income of farmers.

• Reliance on Informal Sources: 25% of agro-finance still comes from moneylenders. These moneylenders are highly exploitative and charge exorbitant rates.
• Although the quantity of Short Term Loans has increased, Long Term Investments in agro-infrastructure have decreased, both by the private and public sectors.  
• Regional Disparity: Coverage is meagre in the northeastern and eastern regions of the country. 
• Agricultural loans, also known as agri credit, are not used for the stated purpose. Primarily, they are used for marriage & consumption purposes by the farmer.
• Credit for Small Farmers: Small and Marginal farmers are not covered by banks and other institutional creditors.
• Banks indulge in coercive actions for repayment, which leads to increased instances of farmer suicides.

1. Priority Sector Lending Norms for Banks

• Banks are mandated to give 10% of their loans to Agriculture & Allied Sector, and 8% of their loans should be explicitly given to Marginal and Small Farmers.

2. Modified Interest Subvention Scheme (MISS)

• Under this, loans up to ₹ 3Lakh are given to the farmer at an interest rate of 7% & if his credit history is good, then 5% additional subvention is provided by the government, making the effective interest rate of 2%.
• Government has launched Kisan Rin Portal (KRP) for faster processing of interest subvention under MISS.

3. Kisan Credit Card (KCC) Scheme

• KCC is a smart debit cum credit card for farmers. The farmer can later pay credit at a very low rate of interest.
• It was started in 2012. In 2018, the facility was also extended to farmers involved in fisheries and animal husbandry.
• The scheme aims to reduce farmers’ dependence on the informal banking sector for credit, which can be very expensive and suck them into a debt spiral.
• Recent reports suggest high default rates on KCCs, which are becoming a significant source of non-performing assets (NPAs) for banks despite their various benefits.
• As of 2024, banks have issued 7.75 crore KCCs with an outstanding loan of Rs. 9.8 lakh crore.
• In Budget 2025, the loan limit of KCC was increased to Rs 7 lakh from Rs 5 lakh.

4. Negotiable Warehouse Receipt

• Under this scheme, the farmer can deposit his produce in a warehouse & get a warehouse receipt in return. The farmer can “mortgage” this warehouse receipt to a banker to get loans or trade at the Commodity Exchange.
• Hence, these Negotiable Warehouse Receipt helps the farmer get a loan for the next cropping season on receipt & sell his produce at a later date when he receives a favourable price for his product.  

5. Loan Waivers

• Various state governments are giving loan waivers to the farmers. 
• But the efficacy of such loan waivers and their impacts on the government’s finances is highly debated.

6. NABARD Initiatives

• NABARD has started various initiatives for the farm sector, like
  1. NABARD refinances Agro Loans. 
  2. NABARD operates the Rural Infrastructure Development Fund.

7.  Pradhan Mantri Kisan Samman Nidhi (PM-KISAN)

• The Agriculture Ministry runs this scheme.
• Under this, income support of ₹6,000 / annum is given to all farmers in three instalments of ₹ 2,000 each.

The measures have reduced the share of non institutional credit from 90% in 1950 to 25% in FY22.