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«Productivity of Rural Credit: A Review of Issues and Some Recent Literature M.S. Sriram W.P. No.2007-06-01 June 2007 The main objective of the ...»

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The issues such as re-negotiations, re-scheduling and re-packaging of loans should be commercial decisions left to the financial institutions. While this flexibility is given to banks for their general portfolio, agriculture suffers from announcements of areawise Page No. 18 W.P. No. 2007-06-01


Research and Publications waiver/repackaging. When this happens in areas that do not have a calamity it amounts to interfering with the commercial terms of the contracts. This aspect is best left to the discretion of the lender. While targets have to be set aggressively on priority sector, agriculture and credit-deposit ratios monitored – these targets could even be taken to the branch level – it might be best to avoid directed credit on “schemes”.

When we rely heavily on supply led strategy, the entire plan could get derailed. This approach not only hampers the normal lender-borrower relationship that the bank and its client could have, but also is detrimental to the health of the banking system in the long run. The supply side approach actually lends itself more to state-capture because they are loaded with disbursal related targets.


The basic thrust of this paper has been that

1. It is extremely difficult to establish the credit-agricultural productivity causality.

There are too many intervening variables

2. Our policy for rural credit has largely has largely run on unifocus on agriculture and small supply induced non-farm credit

3. The demand side indicates a diverse market.

4. Rural people understand the trade offs between access to financial services and the costs [in terms of access]. Therefore the first problem to be addressed by the state is that of access. Market forces will eventually take care of costs.

5. It is best to have policy interventions in the areas of target setting and branch licencing, while leaving the specifics of individual transactions including write offs and settlements to the commercial acumen of the field functionaries of the institutions.

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References Burgess, Robin and Rohini Pandey [2003]: “Do Banks Matter: Evidence from Indian Social Banking Experiment”. BREAD Working Paper.No37.

Census of India (2001): Primary Census


for Rajasthan. New Delhi: Ministry of Home Affairs, Government of India.

Eastwood, Robert and Renu Kohli [1999], “Directed Credit and Investment in Small-Scale Industry in India:

Evidence from Firm-Level Data, 1965-1978” Journalof Development Studies, 35 (4) Krishna, A. (2003): Falling into Poverty: Other Side of Poverty Reduction. Economic and Political Weekly, Vol. 6, pp. 533-542.

Maheshwari, Neelam (2004): Access to Credit: Determinants for an SHG Member. New Delhi: PRADAN (mimeo).

Mohan, Rakesh [2006]: Agricultural Credit in India – Status, Issues and Future Agenda. Economic and Political Weekly Vol.41. No 12 pp. 1013-1021.

NSSO (2005): Situational Assessment Survey of Farmers: Income Expenditure, Productive Assets of Farmer Households New Delhi: Ministry of Statistics and Programme Implementation, Government of India.

Vaidyanathan A [2006]: Farmer Suicides and Agrarian Crisis. Economic and Political Weekly. Vol 41 No.38, Septermber 23rd. pp.4009-4013 Venkateshwarlu, Davuluri and K Srinivas (2000): Debt and Deep Well: Status of Small and Marginal Farmers in Warangal District. Hyderabad: CARE.


Poor defined as those who were officially listed in the Below Poverty Line list based on the survey done by the State. We did not impose a participatory wealth ranking or any other criteria, but took the state list as given.

We engaged the respondents in conversation to check what each member of the family did for a living. For instance, if a person was involved in cultivation and also migrated during some months of a year, and the income from migration exceeded that of cultivation, then their primary employment would be classified as non farm wage employment and secondary employment would be classified as agriculture.

All data quoted in this part are from tables on Pattern of Land Use and Selected Inputs for Agricultural Production in India. These figures have been provided by the Reserve Bank of India and were sourced from Indiastat.com Data culled from “Area under crops: Part I”, put up by the Ministry of Statistics and Programme Implementation, Government of India, sourced from Indiastat.com We have taken ten year averages to ensure that there are no outlier problems that influence the conclusions.

Data sourced from tables pertaining to “Area, Production and Yield of Foodgrains Alongwith Percentage Coverage under Irrigation in India” The figures have been provided by Ministry of Agriculture, Government of India, sourced from Indiastat.com Data Sourced from “Area under crops in India” provided by Ministry of Statistics and Programme Implementation and sourced from Indiastat.com.

This is based on a conversation the author had with Mr. Vijayakumar T. Vijayakumar is the CEO of Society for Elimination of Rural Poverty, that implements the Velugu Programme, and has been at the helm right from its inception.

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