Banking Article, Banking Finance 2021, Banking Finance May 2021


Agriculture is the backbone of the Indian economy as it provides livelihood to a large section of the population. The agriculture sector provides employment to more than 50% of the country’s workforce and accounts for 18% of India’s GDP. More than 70% of the rural households depend on agriculture for their livelihood. As per the Union Budget proposal for FY 2020-21, the government has allocated Rs.2.83Lakh Crore for Agriculture and allied activities, irrigation and rural development.


Current scenario

In India, more than 50% of agricultural households do not own more than one acre of agricultural land and 85% of the Indian Farmers are Landless, Marginal and Small Farmers owning not more than 5 acres of agricultural land.

In major parts of India, there is over-exploitation of underground water, overuse of farm inputs viz. fertilizers, pesticides, insecticides etc., saturated yield/acre, increased pressure on agri land, continuous crop rotation of wheat and paddy over the last few decades, lack of crop diversification due to government policies for providing Minimum Support Price and marketing arrangements for wheat and paddy only and all these culminating to rising Farm Debts and ultimately leading to distress among farmers. Debt-ridden farmers are committing suicides.

There is problem of salinity and alkalinity in many parts of India due to soil texture and due to excessive use of inorganic fertilizers over a period of time.

In Northern India, Stubble Burning is going on unabated. Laws have been enacted but could not be implemented in true sense resulting in suffocation and respiratory ailments like asthma etc.


Agricultural economy and the way forward

There is a need for a centralized database wherein data related to crops cultivated, cropping pattern, yield, sown/irrigated area, soil health, natural calamity can be captured. The best practices in one part of the country can be replicated in other parts of the country to reduce regional disparities. The areas which can play an important role in boosting the agricultural economy are as under:

  1. Agri meteorology: Agriculture is dependent on vagaries of nature and farmers’ fate is more prone to nature when source of irrigation is monsoon rainfall. Better and precise weather predictions help in proactive measures to reduce crop losses. Government of India has signed an MOU with IBM to use Artificial Intelligence for Crop Selection and Crop Monitoring with the use of Satellite Technology in monitoring the agricultural sector.
  2. Agri infrastructure: Construction of warehouses and cold storage chains are required to augment the growth of agro and food processing industry. It will also take care of the food security aspects of the country as India ranks 103 among 119 countries in Global Hunger Index. The government in Union Budget 2020 has announced the setting up of KISAN Rail by Indian Railways for transporting agri perishables.
  3. Agro food processing: It can play a vital role in ushering in a new revolution in the field of agriculture. A separate ministry has been carved for it and Specific Economic Zones (SEZs) are being made. A special fund has been set up by the government with a corpus of Rs. 2000.00 Crore to enable NABARD to provide affordable credit to entrepreneurs to set up new food processing units or modernize existing food processing units in designated food parks. Ministry of Food and Agro Processing Industry is ensuring modern infrastructure in Food Processing Industry along the entire supply chain through Pradhan Mantri Sampada Yojna.
  4. Crop diversification: India is now self-sufficient in foodgrain production, which mainly include Wheat and Paddy. India is the largest importer and consumer of pulses across the World. As per Dr. M S Swaminathan, after sufficiency in Food Grains production and consumption, the second area which needs attention is the elimination of protein hunger. This can be done by increasing the production and consumption of pulses. The major role is being played by NAFED as the nodal government body for the procurement of pulses. Farmers may opt for Oilseeds and Horticulture Crops. Maharashtra is the leading state in Horticulture in the country and contributes 98% of the total exports of grapes from India.
  5. Role of cooperatives: The role of cooperatives needs to be strengthened to achieve the financial inclusion target. Apart from the Institutional Credit, the farm machinery and implements can be provided to the farmers on custom hiring basis at concessional rates and on regular basis.

More than Rs. 30,000.00 Crore of Basmati has been exported by the Government of India. Cooperatives must be having direct access to the export of agriculture produce as majority share of profit is pocketed by the middlemen. Stubble burning can be checked by the Cooperatives at block level which may collect the straw from the agri fields to process the same for manufacturing Card Boards, Paper etc.

  1. Rural and farm infrastructure: Rain water harvesting techniques need to be implemented at the grass-root level. To conserve energy and in order to supply minimum 8 hours of electricity to farms, solar power panels can be installed alongside Canals or National Highways. Punjab has started incentivizing farmers who are using water judiciously for irrigation purpose. The same can be replicated in other parts of the country.
  2. Organic farming: It prevents further deterioration of soil quality and contamination of food chain and to a certain extent is helpful in preventing salinity and alkalinity of soil. Scope of Organic Farming can be explored in various parts of India.
  3. Contract farming: It helps in reducing the input costs and operating expenses. In India, we have more than 75% small and marginal farmers who cannot afford to invest in farm machinery and implements and are dependent on Custom Hiring Units for the same. Contract Farming can improve the operating profits in the agriculture sector.
  4. Farm to market: To minimize the role of middlemen, there is a need to develop an efficient supply chain that links farmers directly to the markets. Farmers need to organize into cooperatives or companies. Amul is the first organized retail chain connecting farmers to consumers.


Digital innovations in agriculture sector

  1. a) E-NAM: It is a Technology driven unified National Level Market platform that integrates the physically dispersed markets enabling better price discovery for the farm produce.

Punjab Mandi Board has recently launched the e-PMB, a mobile application. The mobile application provides real-time information of procurement to the farmers. The app enables an opportunity to farmers to sell their produce on real-time rates.  Besides, consumers can compare the rates prevailing in various  mandis across the state.

  1. b) Remote sensing and geo tagging: It helps in crop identification, crop production forecasting, crop acreage and yield estimation, assessment of crop progress and crop damage, soil health, soil mapping, water resource mapping and climate change monitoring.
  2. c) Under Digital India, Government of India provides Mandi prices on real-time basis through GramSeva: Kisan App.
  3. d) As majority are small and marginal farmers, corporates through mobile-based apps are providing farm machinery and implements to farmers on rental basis. Krishi Gyan mobile app has been designed to spread agri related information among rural households.
  4. e) Now, banks too have launched mobile based applications to cater to the specific needs of farmers. Baroda Kisan Agri Digital Platform developed by Bank of Baroda provides information on weather, crop health, soil moisture, pest infection , mandi prices, crop specific advisory, equipment renting etc.
  5. f) Web based portal for the banks to facilitate ease of credit to the farmers for agriculture and allied activities on then lines of PSB loans in 59 minutes to MSMEs can be developed.


Need of the hour

Need of the hour is to bridge the gap between the policy makers, farm technocrats and the farmers. The government bodies, agricultural institutions, social and religious bodies/institutions should come forward and apprise the masses and farmers regarding the aftermaths of over-utilization of natural and scarce resources.

Farm extension management plays an important role in the dissemination of financial literacy and farm management practices and ground-level implementation of government policies.

Financial literacy is the need of the hour as the majority of the farmers are not making optimum use of available funds. Financial Literacy Centres are being run by certain PSU Banks in their respective Lead Districts which can play an important role in this regard.

State agricultural universities can play a major role in disseminating information on new innovations and better farm practices through extension management services.


Opportunities for credit flow to agricultural sector

Agricultural credit is an important prerequisite for agricultural growth. Demand for agricultural credit has increased due to the use of modern technology, increase in the use of fertilizers and pesticides, increase in irrigation facilities and increase in coverage of area under high yielding varieties.

As reported by NABARD, the banks in India disbursed Rs. 12,54,762.20 crore in Financial Year 2018-19. The share of small and marginal farmers is Rs. 6,26,087.53 crore i.e. 49.90% out of total disbursement.


The Government of India has set agricultural credit target at Rs. 15.00Lakh Crore for FY2020-21. The government has proposed PM KISAN beneficiaries be covered under KCC Scheme. Percentage of Budgetary Expenditure for Agri and farmers’ Welfare is 4.67% only as per budget estimates of 2020-21. In 2018-19, the actual expenditure on PM KISAN was Rs. 1241 crore against the budgeted estimate of Rs. 75000 crore.


Need for investment credit in agriculture: With latest technologies, farmers are adopting the best practices to earn profit from farming activities. India has diverse agro-climatic conditions and has enough opportunities for both Hi Tech and Traditional Agriculture.

Studies have shown that investment on roads or expenditure on agri research and extension are essential for agricultural growth and poverty reduction and are more effective in the long run in reducing poverty than subsidies on fertilizers, irrigation etc. Rural or agricultural sector infrastructure include Road Networks, Irrigation facilities, Storage facilities, telecommunications, electricity. There is need for investment in Infrastructure for Agri Produce Storage viz. Warehouses, Godowns, Silos, Cold Storages. Besides, there is need for investment in Food and Agro Processing Industry.


The backward and forward linkages in the Value Chain of Food and Agro Sector can be tapped for increasing Agriculture Credit as finance to Food and Agro Processing Industry up to Rs. 100.00 Crore per Borrower gets covered under Agri Credit.  Similarly, the regions may finance for Agri Storage Infrastructure e.g Warehouses, Cold Storage Chains, Grain Silos as lending to Agri Infrastructure up to Rs. 100 Crore per borrower also gets covered under Agriculture Credit.


Financing against warehouse receipts helps the farmers to overcome situations of glut in the market and prevents distress sale. The scheme can be popularized by field level functionaries.

 Farmer producer organizations: A financing model for credit requirements of Farmer Producer Organizations across the entire supply and value chain can be designed to minimize the role of middlemen from farm to market.



There is immense scope for further increase in agricultural credit portfolio. In metro and urban areas, there is potential for financing to food and agro processing industry, firms dealing in irrigation equipments, farm machinery and construction of agri storage infrastructure etc. whereas the rural and semi-urban areas have the potential to increase direct farm lending.

In India, direct farm lending to small and marginal farmers mainly constitute production line of credit. The focus must shift to investment line of credit also.

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