A Review of Constraints in the Agriculture Credit Delivery System in India

The availability of timely and affordable credit is one of the factors in ensuring profitability of agriculture in India. The sustainable agriculture would keep farmers engaged in farming and would ensure food security of Indian population. Despite various initiatives of government, the farmers are still financially excluded and resort to manipulative informal sources of financial sector. Agriculture value chain needs to be restructured to increase the efficacy of the prevailing system in India. The studies indicate that an innovation, embedded in the agricultural value chain, can address the twin concerns of huge cost and repayment risk, associated with agricultural financing. The study reviews the agri-based value chain and financing mechanism issues and recommends to address the probable challenges through effective implementation of alternate financing schemes. The warehouse receipt based financing, a tool of value chain financing, can be offered as a solution. The study proposes integrating the Farmers Producers Organization (FPO) and Cooperative Marketing Societies (CMS) to act as collateral managers. The existing setup can be revamped by creation of enabling factors like development of clusters of warehouses, formal recognition from bankers and special status given to FPO/CMS in the legal setup. At the same time, capacity building of FPOs/CMS, will alsofacilitate sustainability of the system.