Agricultural Credit By RBI – Free PDF Download

Table of Contents

ABOUT THE INTERNAL WORKING GROUP

An internal working group led by M K Jain was formed by RBI in February 2019.
It submitted its report in September 2019.
Its mandate was to provide recommendations on agricultural credit, especially the impact of farm loan waivers on state finances.
The working group was to study 3 aspects:-

Factors that drive agricultural credit
Building a cost-effective and inclusive credit system
Enforcing credit discipline (impact of loan waivers on state finances and agricultural credit).

Right at the time of RBI’s inception in 1935, it was felt that the central bank should pay special attention to agri credit.
So, the RBI Act laid foundation to a special Agricultural Credit Department to study the problems and coordinate with the agencies concerned.
Department was rechristened as the Rural Planning & Credit Department.
Till date, there have been several committees and working groups to study and suggest measures to boost agri credit.

The ratio of agri credit outstanding to agri GDP increased from 0.6% in 1950-51 to 10% in 1971-72 and 22% by 1987-88.
It was due to several policies such as 5-year plans, bank nationalisation, the bank branch policy and priority sector lending.
But the ratio declined during 1991 economic reforms, which led to the start of Kisan Credit Card scheme in 1998.
This coupled with other measures paid off as the ratio zoomed to the 50% level as of today.
Institutional source of agri credit with a mere 10% share in 1951, now reads 72%.
So the main objectives of the committee is to suggest ways to increase the percentage of institutional finance.

Digitise land records and make them accessible to banks for easier verification of collateral.
Make a federal institution on the lines of the GST Council to take inputs from both the Centre and states.
Banks should leverage technology in a major way and explore collaborations with agri-tech companies.
For small and medium farms (SMFs), banks should not insist on land records for loans up to Rs 2 lakh.
The committee also noted that there is a wide disparity across states when it comes to agri credit.
The ratio of agri credit to state GDP is highest at 200% for Kerala and just 20% for the North-East and West Bengal.

Rural Infrastructure Development Fund (RIDF) should be used as a tool to deepen credit absorption in these states.
The RIDF, set up under NABARD in 1995, gets funds from commercial banks to make up for shortfall in priority sector loan targets.
The report asked state governments to conduct awareness initiatives for land consolidation to achieve economies of scale.
The working group favours DBT compared to interest subvention schemes.
It proposed that the governments avoid waiver and instead make the existing policies more efficient.
The Indian agriculture system is a maze with several ministries and organisations responsible for different tasks.
Thus, any committee recommendations are often lost in the process.
To avoid this, the Jain committee has marked out specific ministries and organisations against each suggestion, which is really helpful.