GOVERNMENT SUPPORT IN AGRICULTURAL FINANCE
Agriculture, especially commercial agriculture requires adequate funding from the Government. Farmers need remuneration just like any other profession and this comes from various Government agencies, Nationalized Banks, State Banks, and Co-Operative Banks etc.
There is a drastic rise in population and agriculture needs appropriate expansion to meet the dietary needs of a nation. Climate changes are another cause for worry and require funding in terms of research, better planning and management. Current estimates indicate that the demand for food will increase by 70% by 2050 and at least $80 billion annual investments will be needed to meet this demand. The private sectors funding is equally important in such scenarios.
The growth of agriculture is constrained by ineffective policies, high transaction costs, covariance of production, market, and price risks, absence risk management strategies etc. Sustainability is an important factor in the long run and more food production is required to meet the demands of the population. Infrastructure of agriculture must change and adapt to meet current market needs. Advancements in agricultural technology and research and many other factors require adequate amounts of funding from agencies (Government / private). Risk management mechanisms are required to lower operating costs in dealing with smallholder farmers. Agriculture finance is also required to eradicate extreme poverty and boost shared prosperity.
Agricultural finance and marketing is based on the basis of time and purpose. The needs of farmers based on time are short term, medium term and long term. Short term loans are required to buy seeds, fertilizers, pesticides, feeds, payment of wages etc. The period of loan is about 15 months. Medium term loans are required to buy cattle, implements, repairs etc. The loan period is 15 months to 5 years. Long term loans are required digging tube wells, buying machinery, tractors etc. The loan period extends beyond 5 years. Agricultural credit based on purpose is for productive, consumption needs, and unproductive. Productive needs are include all credit requirements that affect agricultural productivity. Consumption needs come into picture as farmers do not get loans for consumption purposes and look toward moneylenders. Unproductive loans include litigations, personal reasons such as marriage, functions etc.
Loans are obtained from non-institutional sources and institutional sources. The former consist of moneylenders, relatives etc and the latter category includes Banks, cooperative societies etc. Farmers have suffered over the years at the hands of moneylenders and hence the Government has taken great pains to create Rural Finance Institutions (RFIs) to increase farmers credit and reduce dependency on moneylenders.
Let us look at a few Government agencies and organizations working diligently towards providing Finance to the Agriculture Sector.
The National Bank for Agricultural and Rural Development (NABARD) is a leading development oriented bank and is headquartered in Mumbai. The NABARD in conjunction with the Alliance for Financial Inclusion is constantly working towards ensuring the development and implementation of the Government’s financial inclusion policy. Financial assistance is also provided to the development of villages as well. Some initiatives of the NABARD include crop productivity, soil and water conservation, maintaining tribal heritage, and other initiatives for the betterment of the rural community. Other initiatives include betterment of the cottage industry, regulating cooperative banks, providing loans to Self Help Groups (SHG) through an initiative called the SHG Linkage Program, and so on. The NABARD in association with the Swiss Agency of Development and Co-operation has introduced the Vrajlal Sapovadia Rural Infrastructure Fund aimed at rural innovation. NABARD also provides direct lending assistance to rural areas through its Umbrella Program for Natural Resource Management (UPNRM). There are several other schemes and policies laid out by NABARD in the betterment of rural living conditions and to achieve sustainable agriculture.
The Reserve Bank of India caters to the financial needs of agriculture just like other sectors. In this respect the RBI has special staff to study all aspects of agriculture. Some of the initiatives of the RBI are to lend credit to farmers, to finance the movement of crops, and so on. The Agricultural Credit Department of the bank is mainly involved with research in the agriculture field. The RBI operates the Integrated Scheme of Rural Credit with focus on state partnership, coordination, administration, loan policies, etc. The Agricultural Refinance and Development Corporation under the RBI provide long term and short term agricultural credits. The RBI also provides medium term credits.
The SFAC is short for Small Farmers Agri-Business Consortium and is supported by the Ministry of Agriculture, Government of India. It aims at increasing incomes of small and marginal farmers by developing the agricultural business. The SFAC has pioneered the growth of Farmer Producer Organizations / Farmer Producer Companies to make farming viable and sustainable. A great initiative by the SFAC is to provide Equity Grant and Credit Guarantee Fund Scheme to farmers to increase capital and business activities. It also helps promote small agribusinesses and has created an online platform called the National Agricultural Market Electronic Trading Platform (e-NAM). The NAM provides transparent online trading, real time price discovery, reduced transaction cost for buyers, certification, efficient supply chain, enhanced accessibility to the market etc. The enam portal provides farmer registration facility, teaches them how to split and merge produce, sampling, assaying and approval for trade features etc. It is an excellent initiative by the government in making the farmer’s internet savvy and earn income in a better way. It also provides updates about upcoming markets, government initiatives and policies and all information relevant to farmers.
AFC India Limited
AFC India Limited was incorporated to finance agriculture. Some of their activities include agriculture extension under PPP model, livelihood support services, financial literacy and financial inclusion, Panchayati raj etc. The SFAC appointed the AFC as a Project Management Agency (PMA) to support Venture Capital Assistance Scheme (VCAS). The PMA consists of 3 packages namely, the Advertisement Package, Public Relations Package, and the Awareness Building Events Package. Each of these are meant to support agriculture sector in any way possible.
Cooperative credit societies
These societies have been created with the aim to provide short term and long term loans.
Sometimes cooperative banks cannot cater to the needs of the farmer and thus commercial banks come into picture to come to the aid of farmers.
Regional Rural Banks
These were created to supplement the efforts of commercial banks and cooperatives in extending credit to weaker sections of the rural community such as small and marginal farmers, landless laborers etc.