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20/09/2019 - Agriculture

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September 20, 2019

Whether providing interest subvention to small and marginal farmers through Direct Benefit Transfer allows them to get access to institutional credit efficiently? Analyse (200 Words)

Refer - Financial Express

Enrich the answer from other sources, if the question demands.


 

5 comments
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IAS Parliament 5 years

KEY POINTS

·        To ensure that millions of small and marginal farmers—India has a total of around 120 million farmers are not at the mercy of moneylenders, or other expensive sources of finance, the government has, historically, mandated that banks ensure that a certain share of their lending is to these farmers.

·        Currently, 18% of all bank lending has to be mandatorily lent to the agriculture sector. And, to ensure farmers get loans at low rates of interest, the government pays a certain proportion of the interest to banks directly while farmers pay the rest.

·        A report by an RBI internal working group on agriculture credit, however, points to major problems in how the scheme is working; in which case, the government probably needs to look at completely recasting it.

·        The good news here, of course, is that while formal bank credit was just around 10% of total farm credit in 1951, this is up to around 70% today.

·        But here’s the problem, the concessional farm credit that is given by commercial banks mostly in the public sector is many times greater than the inputs bought by farmers;

·        In all probability, as researchers other institutions have surmised over the years, since the loans are at vastly subsidised rates, they are probably being diverted to non-farm users;

·        So, RBI found that in Andhra Pradesh, the total bank credit going to the farm sector is 7.5 times the cost of inputs bought by farmers; this is six times in Kerala, five for Goa, four for Telangana.

·        The RBI study also found that while livestock, forestry, and fisheries contributed around 38-42% of agriculture output during 2014-16, this sector got just 6-7% of total agriculture credit; clearly, this is an issue that needs addressing.

·        long-term investment in agriculture is getting compromised; at a time when overall investments in agriculture are slowing—investment-to-agri-GDP fell from 18.2% in FY12 to 13.8% in FY17—and, within this, the share of the government has fallen even more sharply, this needs to be corrected.

·        Ideally, the government should stop the practice of subsidised loans, and instead, give the subsidy directly to farmers through DBT; once subsidised loans are not available from the banks, the practice of huge loans will also stop.

·        Over time, all agriculture subsidies should be trimmed, and money should be invested in creating irrigation, or other facilities that benefit the sector more.

 

 

 

 

 

Chinna 5 years

Kindly review...thank you

IAS Parliament 5 years

Try to stick to word limit. Keep Writing.

rajiv 5 years

sir plz review..

IAS Parliament 5 years

Good attempt. Keep Writing.

Chandresh Pathak 5 years

Kindly review. Thank you

IAS Parliament 5 years

Argue whether interest subvention via DBT is reliable?No need to elaborate on problems. Keep Writing

Alok Dwivedi 5 years

For review!

IAS Parliament 5 years

Good answer. Keep Writing.

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