Give financial muscle to farm sector: RBI Guv

Ruchika M Khanna

Tribune News Service

Chandigarh, April 24

Amid deepening crisis in Indian agriculture, RBI Governor Raghuram Rajan has called for expansion of formal financing sector in rural and agrarian belts.

Holding the “lack of formal finance” in the agriculture sector responsible for the current crisis, Rajan said the issue of agriculture credit needed to be studied in the wake of risks posed by climate change on farm productivity. On his maiden visit to Chandigarh today, the RBI Governor participated in an interactive session organised by the Centre for Research in Rural and Industrial Development (CRRID).

On farmers’ suicides, Rajan said: "It cannot be taken lightly, nor can an easy explanation be offered to avoid it. The issue needs to be studied. Though arhityas are the primary financiers in the rural economy, they give loans at very high rates. So, there is a need to expand formal financing, which the government is trying to do through the Pradhan Mantri Jan Dhan Yojana.”

The Reserve Bank of India (RBI) has now announced new norms for priority sector lending in agriculture, where eight per cent of the total lending has to be made to small and marginal farmers, especially those who had remained financially excluded till date. Rajan said: “Right institutions and right incentives will bring farmers in the fold of institutional finance. Eighteen per cent of priority sector lending goes to agriculture sector, which also includes advances made to food industry.”
Indirectly referring to the Agriculture Debt Waiver and Debt Relief Scheme, 2008, announced by the UPA government, which also propelled it to stake a second chance in the government, Rajan said whenever loan was waived, it impeded the flow of credit to that sector, rather than enhancing it.
"The lender becomes wary as he takes the hit and he disrupts credit flow. Simplistic solutions can be avoided and issue of agriculture credit needs to be taken up more holistically," he said.
Rajan suggested that farmers should be told to increase productivity as well dependence on allied agriculture activities, besides studying increase in economic opportunities outside the sector. "With low farm productivity and high risks in agriculture, there is a need to build other opportunities such as creating road infrastructure and setting up small rural enterprises. In fact, the Make In India programme can actually turn out to be an answer to the agrarian crisis as it provides avenues for creating rural entrepreneurship," he said.
The RBI Governor said another area that needed attention was the small and medium enterprises and micro industry. Under the revised norms for lending under the priority sector, the RBI has also made it mandatory that 7.5 per cent of lending be done to micro units. Receivable Exchanges are being set up that will allow a micro enterprise to offer his invoice or receivables from a large public sector undertaking or government. It is an online marketplace for the sale of accounts receivable. Small and midsize businesses gain access to working capital by auctioning invoices to a global network of institutional buyers who compete to buy invoices via a real-time market place. Rajan said the reason for India’s economic slowdown was too much of fiscal stimulus given to the economy, which, while pushing the country on a growth party, also led to high inflation.