Critique of the system of agricultural finance in India

[bnath]

The delivery mechanism for agricultural credit in India is fundamentally flawed. This has been acknowledged in the media; numerous academic studies commissioned by the government and non governmental agencies, and is borne out by the dismal economic condition of the average Indian farmer.
At the outset the requirement of atleast 4 acres of land to be eligible for a tractor loan makes , a majority of Indian farmers ineligible for tractor loans. Hence a majority of Indian farmers( apprx. 80%) who have holdings of less than four acres are automatically ineligible for tractor finance and are hence condemned to either pay exorbitant amounts to have their fields cultivated, or have to work like beasts of burden. Moreover they also have to pay exorbitant amounts for transportation, and have to part with already is a meager subsistence income for their needs for transportation.
One practice that is both irrational and unconstitutional is what is known as NPA factoring, ie the supply of credit is constrained from a region where there have been defaults. This amounts to discrimination which is arbitrary and irrational and could be seen as a form of collective punishment. It is also unsound banking as the proposal is not looked at on its merits but on extraneous and irrelevant factors.
Another factor on the basis of which the efficacy of the system of agricultural credit in India can be evaluated is through the rate of recovery of loans, and debt servicing. Due to the fact that the conditions for disbursement of loans are so onerous and unrealistic, it breeds corruption and fraud, which leads to low recovery of loans, and a high rate of NPA’s. It is therefore a vicious cycle that results in low disbursement of credit, and low recovery of loans.