As the India’s agriculture sector is a significant sector of it’s economy, employing around 50% of the population while contributing 17-18% to GDP, the access to financing options—such as crop loans, Kisan Credit Cards, and agricultural insurance becomes important to enable farmers to invest in modern practices and boost productivity.
While challenges like limited banking access and collateral requirements persist, these financial initiatives have substantially improved rural infrastructure and equipped farmers to navigate crop loss and uncertainties effectively.
India’s agriculture sector is a vital component of it’s economy, employing approximately 50% of the population while contributing 17-18% to the GDP. Access to agricultural financing is crucial, empowering farmers to invest in modern practices, acquire quality inputs, and boost productivity. This financial support facilitates a range of activities, including storage, production expansion, marketing, daily operations, land acquisition, and the purchase of essential equipment like tractors and harvesters, all of which drive growth and sustainability within the sector.
In India, agricultural financing is facilitated through a variety of institutions, including commercial banks, regional rural banks, cooperatives, and microfinance organizations. Beyond traditional loans, farmers have access to diverse credit options, such as crop loans, Kisan Credit Card (KCC) schemes, term loans, and agricultural insurance. These financial instruments not only support crop production and the acquisition of necessary inputs but also enable long-term investments. By enhancing productivity and providing protection against crop damage and post-harvest losses, these financing avenues play a pivotal role in strengthening the agricultural landscape.
Crop Loans: A crop loan is a short-term credit offered to farmers and agriculturists by banks and cooperative societies. It helps them purchase quality seeds, fertilizers, machinery, and other inputs. Since agriculture is a priority sector, these loans are provided with favorable terms and are typically repaid in a single installment after harvest. Crop loans are secured, with interest charged semi-annually at a simple rate. Additionally, lenders and cooperative societies can seek refinancing for these loans through NABARD.
The Reserve Bank of India (RBI) reports that the total crop loan disbursed by banks in India rose from Rs 8,55,328 crore in March 2020 to Rs 10,38,954 crore in March 2021, reflecting a year-on-year growth of 21.4%.
Kisan Credit Card Scheme (KCC): The Kisan Credit Card (KCC) scheme, introduced in 1998, provides farmers with credit based on their landholdings, enabling them to easily purchase agricultural inputs like seeds, fertilizers, and pesticides, and access cash for production needs. In 2004, the scheme was expanded to cover investment credit for allied and non-farm activities. Designed for flexibility and simplicity, the KCC scheme ensures farmers receive timely and sufficient financial support through a single-window banking system to meet both cultivation and other agricultural needs.
Term Loans: Agricultural term loans are long-term financing options offered to farmers for capital investments, such as buying tractors, farming equipment, or building farmhouses. These loans usually have repayment periods spanning 3 to 10 years.
As per the RBI, the total agricultural term loans disbursed by banks in India rose from Rs 2,10,491 crore in March 2020 to Rs 2,50,378 crore in March 2021, reflecting a 19% year-over-year growth.
Agricultural Insurance: Farmers are given protection against crop losses caused by natural calamities and disasters like floods, droughts, pests, or diseases through agricultural insurance.
Launched in 2016, the Pradhan Mantri Fasal Bima Yojana (PMFBY) is a government-backed crop insurance scheme that covers farmers for losses due to natural calamities, pests, or diseases. By 2020, more than 5.61 crore farmers were insured under PMFBY, with a total insured amount of Rs 2,37,000 crore. This scheme has been crucial in providing financial security to farmers and alleviating the impact of agricultural distress from crop failures.
India’s Agricultural financing initiatives have positively transformed the agriculture sector despite existing challenges. These efforts have significantly increased farmers’ access to credit, allowing those previously unable to secure loans, to invest in their operations and enhance productivity. Moreover, these financial initiatives have spurred improvements in rural infrastructure, such as irrigation systems, roads, and warehouses, further supporting agricultural growth.
Additionally, risk mitigation has become more feasible through crop insurance schemes provided by financial institutions and the government, alleviating some of the financial strain on farmers. As a result of these advancements, the India’s agriculture sector, serve as key source of employment, has seen a rise in productivity, leading to more job opportunities and contributing to overall economic development.
Read More:
1. Renewing India: The Regenerative Farming Revolution
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