An analysis of flow of commercial banks’ credit to agriculture in India: The pre and post reform period

Agriculture and allied sector plays important role in Indian economy from the point of view of supply of raw material to agro-based industry, food security to masses and providing employment opportunities to rural population and especially unskilled labors. Agriculture including allied activities, accounted for 14.5 per cent of gross domestic product (GDP) at 2004–05 prices, in 201011 as compared to 14.7 per cent in 2009–10 and 46.3 per cent in 1970–71. For the modernization and to create competitiveness in agricultural sector credit is an important input. Since independence Government of India (GOI) has been taken various measures to institutionalize the agricultural credit.

To increase agricultural credit specifically by commercial bank GOI has taken various initiatives since independence like nationalization of banks (1969 & 1984), mandatory priority lending, Special Agricultural Credit Plans (SACP) and others etc., so that credit supply from commercial bank to agricultural sector increased from lower amount of Rs. 405 crore in 1975–76 to huge increased Rs. 5400 crore in 1993–94 and again extended in second decade of economic reforms from Rs. 33587 crore in 2001–02 to Rs. 368616 crore in 2011–12. So far all said and done, in the second decade of economic reforms, i.e. from 2001–02 to 2010–11, some issues become cause of concerns about credit flow by commercial bank to agricultural sector. These are i) A sharp decline has been taken place in the absolute number of Marginal and Small Farmers agricultural loan accounts and ii) There are large skewed towards developed area (Urban and Metropolitan) in the disbursement of bank credit to agriculture sector and iii) there is increase in the regional inequality of credit flow. So, there are some challenges in the supply of agricultural credit by commercial banks.