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Agriculture Credit by RBI’s Internal Working Group

Agriculture Credit by RBI’s Internal Working Group

Tag:GS3 ||Economy || Agriculture|| Agricultural Credit

Why in news?

  • The report of the M K Jain-led internal working group is the latest in the ever-growing list of official recommendations on agricultural credit.
  • RBI panel suggests setting up a web portal for quick agricultural loans.
  • Reserve Bank of India (RBI) has suggested that the Indian Banks’ Association (IBA) introduce a web portal on the lines of PSB Loans in 59 Minutes to allow quicker credit access for the agriculture sector.

Finding of report:

  • 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 nationalization, the bank branch policy and priority sector lending.
  • But the ratio declined during the 1991 economic reforms, which led to the start of the 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%.
  • the main objectives of the committee is to suggest ways to increase the percentage of institutional finance

 Recommendation of the group:

  • Digitize land records and make them accessible to the bank 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(SMF), banks should not insist on land records for loans up to 2 lakh.
  • The committee also noted that there is a wide disparity across states when it comes to agri comes.
  • The ratio of agri credit to state GDP is highest at 200% for Kerala and just 20% for the northeast and west Bengals.

Other recommendations:

  • Rural infrastructure development fund 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 the state government to conduct initiatives for land consolidation to achieve economies of scale.
  • The working group favors DBT compared to interest subvention schemes.
  • It is proposed that the government should avoid waiver and instead make the existing policies more efficient.
  • The Indian agriculture system is a maze with several ministries and organizations 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 organizations against each suggestion which is really helpful.
  • Establishing a centralized database for capturing all kinds of data and a credit guarantee scheme for agricultural loans.