Indian Agriculture Sector Lending From Institutional Sources – An Analysis

Agriculture is a dominant sector of our economy and credit plays an important role in increasing agriculture production. Availability and access to adequate, timely and low-cost credit from institutional sources is of great importance especially to small and marginal farmers. Along with other inputs, credit is essential for establishing sustainable and profitable farming systems. Most of the farmers are small producers engaged in agricultural activities in areas of widely varying potential. Experience has shown that easy access to financial services at affordable cost positively affects the productivity, asset formation, income and food security of the rural poor. The major concern of the Government is therefore, to bring all the farmer households within the banking fold and promote complete financial inclusion. Indian agriculture is dominated by smallholders. With an average land holding size of just 1.08 ha (in 2015-16), and 86 percent of holdings being of less than 2 ha size, Indian agriculture produces sufficient food, feed, and fiber for India’s large population of 1.35 billion, and in addition generates some net export surplus. This would not have been possible without the infusion of massive credit to farmers to buy modern inputs ranging from seeds, fertilizers, pesticides, farm machinery, etc. But how has this system of agri-credit evolved in India over time? What is its organizational structure, and how effective is it in terms of its reach, especially to smallholders? How efficiently can it deliver credit and what sorts of innovations are unfolding in this sector to make it more efficient, inclusive and sustainable? These are some of the key questions that are addressed in this paper