India is basically Rural India and Rural India virtually includes the cultivators, the village craftsmen and agricultural laborers. One of the serious and unrelenting problems faced by the Indian farmers’ households has been indebtedness.

Despite substantial improvement in agricultural output and distribution of credit, still majority of the farmers are suffering from this major economic malaise called indebtedness along with lack of timely and adequate farm credit. Agricultural distress witnessed in the country occasionally takes the form of suicides by farmers. It is a symptom of a deep-rooted malady arising from inadequate public investment and insufficient public action in recent years. Given the seriousness of the emerging situation, St Soldier Management Technical Institute Jalandhar organized a two days National Seminar jointly sponsored by NABARD and Planning Commission, Government of India.

First Punjabi farmer Member of Commission for Agricultural Costs and Prices, Mr. Mohinder Singh Grewal, inaugurated the seminar in Master Raj Kanwar Memorial Auditorium of the institute. In his inaugural address Mr. Grewal stressed the need to introduce scheme for the farmers with no or nominal rate of interest. He said that since returns to the farmers were uncertain and much on the lower side, they find it difficult to pay back the amount. He discussed various financial schemes made available to the farmer by the cooperatives and public sector banks. He stressed the need for diversification of agriculture based on agro- industry and scientifically developed method of farming. He cautioned the farmers to make use of credit facilities available to them with restraints and advised the farmers not to use this credit for unproductive purpose. He also advised the formal financial institutions, which have failed to promote many of the social objectives, to provide credit to rural population liberally.  Dr. Grewal also released a Souvenir prepared by the institute.

Eminent agricultural economist cum Director of the Seminar, Dr. Gursharan Singh Kainth elaborated the theme in his keynote paper on the Flow of Institutional Credit for Agriculture: Status and Future Agenda. He pointed out that since the inception of Central Economic Planning in 1950, the government identified the credit needs of the rural people and framed polices conducive for the flow of institutional credit for the farm sector.  He added that there has been substantial improvement in the flow of institutional credit in India for the past three decades. But agricultural credit started growing only after bank nationalization and has increased manifold since then. The overall performance of Indian banking system is 15 per cent as against the norms of 18 per cent of Net Banking Credit. Indian record of extension of rural credit is a quite story of institutional innovations. Dr Kainth elaborated that the remarkable feature of agricultural credit extension in India was the widespread network of Rural Financial Institutions.

The main story in the extension of rural credit has been the ascending of commercial banks along with RRBs with a corresponding fall in the share of cooperatives. This is reflected in the increasing concern in recent years over the effectiveness, governance and financial health of rural cooperative. Dr Kainth stressed that there is a strong need to revitalize rural cooperatives and put on a sound business footing. According to him structural transformation taking place in the Indian economy has worked against the agricultural sector. Looking to the credit flow toward agriculture and allied sector, Dr Kainth pointed for a positive hope of reverse migration taking place in the country. Dr Kainth hoped that the villagers in the country will become prosperous and urbanities will like to go back to the villages for peaceful living.

Nineteen papers contributed by experts from different universities, institutes and colleges of the region were deliberated at the Seminar. The Seminar was organized in two different technical sessions chaired by Dr. Pramod Kumar of Division of Agricultural Economics, Indian Agricultural Research Institute, New Delhi and by Dr. Manmohan Singh Gill Head, Department of Sociology, Guru Nanak Dev University Amritsar. Mr. K.K. Dhir Managing Director St. Soldier Educational Society proposed a vote of thanks. He also released a C.D. of the Seminar. To give a sigh of relief from the academic heat, students of the institute presented a colorful cultural extravaganza in the evening.

The seminarians took a serious note of the declining growth rate in agriculture.  It was felt that to boost agricultural growth rate, India needs massive investment both the public as well as private investments.  But public investment over the years has stagnated or declined.  On the other hands, subsidies to agriculture sector have been blooming.  There is a need to reverse the ratio (4:1) of investment to subsidies as marginal return in terms of agricultural growth and poverty alleviation are much higher through investment than subsidies.

The seminarians felt the need for legal and institutional changes relating to governance, regulation and functioning of rural cooperative structure and RRBs who have to be critical institutions for rural credit in future. Both the structure of cooperative, namely, short run and long run lending institutions must be merged into one entity to provide good governance and healthy competition in the banking sector. Furthermore, all the three tiers of cooperative, that is, state, district and primaries must function in collaboration with each other rather than competing. There is a need to foster credit structure to make enhanced rural credit a lasting phenomenon.

It was pointed out that the majority of rural households are with limited land resources coupled with small economic activity accompanied with poor technology. Lending by the formal financial institutions to the poor has been unsatisfactory, But their demand for credit has been rising due to growing family size, increased consumption requirements social obligation and so on. But the institutional agencies not only lack the required mechanism to assess their credit needs but also often overlooked their demand for credit on the ground that their needs are for non-productive purposes. Besides, perceived high risks, transaction costs and absence of collateral security kept the poor away from the hold of formal financial institutions. To reach rural poor, institutional innovations are needed. Banking infrastructure needs to re-orient its finance service for rural poor.  An independent broad based research study may be undertaken to lessen the administrative load and costs such as reduction in the documents required for the purpose. Information technology can play a significant role in rural credit delivery system.  Therefore, the nature of technology suitable at various levels may be identified.

Further the deliberation brought out that rural credit system must be compatible with the goals of higher growth with better equity. There is merit in considering a comprehensive Public policy on risk management in agriculture, as not only a means of relief to distressed farmers but as an ingredient for more efficient commercialization agriculture. India would need new market institution for risk mitigation. A futures market is a step in the right direction, which needs to be strengthened.  The key issue is minimizing the market risks for farmers for creating a scale of marketing the produce of the small farmers.  Government of India should promulgate a Prevention of Atrocities on Farmers and Farm laborers Act for addressing usurious money lending and land grabbing.  Such an Act must stipulate that all lands grabbed by moneylenders in the last 10 to 15 years should be reverted back to the owners and there should be securitizing of moneylender’s assets.  Courts must be instructed to fast track such cases instituted under the Act.  RBI should securities loan of legal moneylenders to farmers and take the assets pledged with moneylenders as their own security. For landless workers, banks should take over the loans on their books against the cash flow due to these people under NREGP.

The seminarian recognized NABARD led SHG-bank linkage program as the positive development in the rural credit sector.  But the program is highly skewed in favor of southern regions. Micro finance and Self-help Groups must be fine-tuned. It was suggested that suitable mechanism might be evolved to see that SHGs do not charge high rates of interests from their clients. This programme needs to be modified to improve access to those who cannot sign by making their use through thumb impression. Seminarian also acknowledged the positive features of KCC such as its revolving credit facility, credit limit based on operational holdings etc.  However, under KCC although the credit limit sanctioned to the small and marginal farmers appear to be better but the security oriented lending polices appears to be a major hurdle. The scope of KCC should be enlarged to take care of the associated needs of the farming households. Seminarians also expressed concern on the diversion of KCC funds for non-agricultural activities and failure in the timely repayment of credit availed through KCC in some parts of the country and in case of large proportion of the farmers. This can go a long way to bring prosperity to Indian farmers.  

* Hon.Director
GAD Institute of Development Studies
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