The present slowdown, more than ever before, highlights the need for investments in farm-related industries.
If numbers alone could tell stories, then the Government could claim to have scripted a very happy narrative for agriculture. Both in his Budget speech this February and subsequently, the Finance Minister, Mr P. Chidambaram, stressed the increase in Gross Capital Formation from 10.2 per cent in 2003-04 to 12 per cent three years later. He also cited the jump in agricultural credit as evidence of the “turnaround” in the sector. So confident was he of the stream of bank funds to the rural sector that he hiked the current year’s target to Rs. 2,80,000 crore. If the dip in disbursals over the first half of the current fiscal is indicative of the prevalent mood among bankers, then the year may end far short of that figure. Ministry officials are sanguine the rest of the fiscal will more than make up for the first half’s deficit; but what difference would it make to the sector?
Not much. Almost all through the years when credit was rising, policymakers had begun narrating quite another story. In 2005, the Finance Minister, and in the following year, the RBI, introduced “financial inclusion” as a policy initiative to combat the startling truth of more than half the farmers having no access to any form of credit—formal or otherwise. Fifty per cent of the rural population was virtually outside the exchange economy. Nothing could have been a more eloquent proof of the failure of policy thus far — the Lead Bank Scheme of 1969 and the subsequent priority sector lending mark-ups — than the fact that just 22 per cent had access to formal bank credit, and 27 per cent benefited from moneylender while 51 per cent could do neither. For three years, new initiatives such as the use of self-help groups, banking correspondents and micro-finance institutions have become part of the inclusion drive. But how should the government judge their success in extending credit? Will the banking sector that views even private airlines as risky ventures today rush into a sector that has stayed sluggish over the years? And in any case, what would bank finance or a savings account do for those hapless farmers than help them meet present consumption needs?
The present slowdown, more than ever before, highlights the need for investments in farm-related industries and equally, an open and transparent process of land transfers that can allow the least productive farmers and labourers to find alternate employment. Only then will those rural credit numbers tell the story they were meant to.
