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25th January 2021 – Editorials/Opinions Analyses


  1. In agri-credit, small farmers are still outside the fence
  2.  The shipping sector is at sea

Editorial: In agri-credit, small farmers are still outside the fence


  • Agricultural credit has become less efficient in delivering agricultural growth. Otherwise, why should over 85% of farmers’ income remain stagnant over the years? Any other sector which has access to a low rate of interest credit has always boomed and ballooned so much so it has created a bubble of its own.


  • GS Paper 3: Farm subsidies and MSP and issues therein (direct and indirect);

Mains Questions:

  1. The agriculture sector’s performance has not been commensurate with the increasing subsidized credit it receives. Discuss. 15 Marks

Dimensions of the Article:

  • Meaning of Agricultural Credit.
  • Phases of Agriculture Finance in India.
  • Types of Agriculture credit in India.
  • Issues in Agriculture Credit.
  • Impact of farm loan waiver on agricultural credit.
  • Way Forward.

Meaning of Agricultural Credit:

  • Agricultural credit is considered as one of the most basic inputs for conducting all agricultural development programmes. In India there is an immense need for proper agricultural credit as Indian farmers are very poor. From the very beginning the prime source of agricultural credit in India was moneylenders.

Phases of Agriculture Finance in India:

Phase 1 (1951-69):

  • Thrust on developing primary sector since 1st FYP in 1951.
  • National Credit Council in 1968 emphasized that commercial banks must increase financing to small scale industries and agriculture.
  • Nationalization of banks in 1969 put thrust on opening of rural/semi-urban bank branches.

Phase 2 (1970-1990):

  • The decade of 1970s marked the entry of commercial banks into agricultural credit with Lead Bank Scheme and regulatory prescription of Priority Sector Lending (PSL).
  • Regional Rural Bank Act, 1976 enacted to specifically provide banking and credit facility for agriculture and other rural sectors.
  • National Bank for Agriculture and Rural Development (NABARD) established in 1982 to promote agricultural and rural development, particularly by financing SHGs and MFIs.
  • RBI introduced in 1989 service area approach (SAA) & Annual Credit Plan (ACP) system to increase outreach to rural areas.

Phase 3 (1991-onwards):

  • Implementation of Narasimham Committee Report of 1991 to increase operational efficiency of banks.
  • 1 st major nationwide farm loan waiver in 1990.
  • Establishment of Rural Infrastructure Development Fund (RIDF) with NABARD mainly meant for funding rural infrastructure projects.
  • NABARD started a pilot project SHG-Bank Linkage Programe in 1992.

Types of Agriculture credit in India:

  • Priority Sector Lending: PSL was introduced to ensure that vulnerable sections of the society get access to credit and that there is an adequate flow of credit to employment intensive sectors like agriculture and MSME.
  • Interest Subvention Scheme (ISS) was launched for short term crop loans in 2006-07. 2% interest subvention is given to farmers, which is reimbursed to banks (through RBI and NABARD). Additionally, 3% prompt repayment incentive (PRI) is provided for good credit discipline.
  • Kisan Credit Card (KCC) Scheme, introduced in 1998, aimed at providing adequate and timely credit with flexible and simplified procedure for agriculture related and also consumption requirements of farmer households.
  • Self Help Group – Bank Linkage Programme (SHG-BLP) aimed at harnessing the flexibility of an informal system with the strength and affordability of a formal system. The SHG-BLP model accepted informal groups as clients of banks – both deposit and credit linkage & allowed collateral free lending to groups.
  • Joint Liability Groups (JLG) Scheme was initiated by NABARD in 2006 to enhance credit flow to share croppers/tenant farmers who do not have land rights.

Issues in Agriculture Credit:

  • Insufficiency: In spite of expansion of rural credit structure, the volume of rural credit in the country is still insufficient as compared to its growing requirement arising out of increase in prices of agricultural inputs.
  • Inadequate Amount of Sanction: The amount of loan sanctioned to the farmers by the agencies is also very much inadequate for meeting their different aspects of agricultural operations. Considering the amount of loan sanctioned as inadequate and insignificant, the farmers often divert such loan for unproductive purposes and thereby dilute the very purpose of such loan.
  • Lesser Attention of Poor Farmers: Rural credit agencies and its schemes have failed to meet the needs of the small and marginal farmers. Thus, lesser attention has been given on the credit needs of the needy farmers whereas the comparatively well-to-do farmers are getting more attention from the credit agencies for their better credit worthiness.
  • Institutional vis-à-vis Non-Institutional Agricultural Credit: Traditionally, rural agrarian credit needs were met primarily through money-lenders, which led to large scale indebtedness o According to National All India Rural Financial Inclusion Survey (NAFIS 2015), share of non-institutional credit still persists at around 28%. Unavailability of credit for consumption purposes and to tenant farmers, sharecroppers and landless labourers, who are not able to offer collateral security, further pushes them towards non-institutional sources.
  • Skewed agency share in institutional credit: Dependency on scheduled commercial banks in agricultural & allied credit is still large (~78-80% of the credit). Though co-operative institutions (~15%) and Regional Rural Banks (~5%) play a significant role in extending agricultural credit, their share is highly skewed geographically.
  • Regional Disparity in Agricultural Credit: States falling under central, eastern and north eastern regions are getting very low agri-credit as % of their agri-GDP.
  • Poor deployment of agricultural credit to allied sectors (~6-7%) despite a share of 38-42% in agricultural output indicates neglect of allied sectors by the banks.
    • There is a lack of proper differentiation between a farmer growing crops and the one engaged in allied activities, as Census defines farmer based on landholding size.
    • Banks insist on land records from a farmer seeking credit for agricultural activities.
  • Issues with Priority Sector Lending (PSL):
    • Though at the aggregate level banks have been able to achieve the overall PSL target of 40%, so far they have failed to achieve the agriculture target of 18% at system-wide level.
    • Moreover, ~60% of Small & Marginal Farmers (SMFs) have not been covered by SCBs.
  • Interest Subvention Scheme (ISS) on short term loans have skewed distribution of agricultural credit in favour of production credit against crop-related investment credit, which is important for long-term sustainability of agriculture sector.
  • Kisan Credit Card: As per Agricultural Census 2015-16, only 45% of the farmers possess operative KCCs. Agricultural households are unable to get credit for their consumption requirements from and hence, they are compelled to go to money lenders. Existing 10% limit in KCC scheme for consumption requirements is inadequate.
  • Diversion of agriculture loans for non-agriculture purposes: In many states like Tamil Nadu, Andhra Pradesh, Kerala etc, agri-credit is far higher than their agri-GDP, indicating the possibility of diversion of credit for non-agricultural purposes. Diversion accentuates the problem of debt overhang, fuels high level of indebtedness and deteriorates credit culture in long run.

Impact of farm loan waiver on agricultural credit:

  • Economic rationale for loan waivers comes from alleviating debt overhang of beneficiaries thus enabling them to undertake productive investment and boost real economic activity (investment, production and consumption).
  • Creates moral hazard as loan waivers lead to poor loan performance and destroy honest credit culture, as it incentivizes borrowers to default strategically in anticipation of future bailouts.
  • Waivers skew credit allocation as banks reallocate lending to lower risk borrower segments
  • Frequent write-offs impacts financial health of banking sector. Prompts banks to invest in Rural Infrastructure Development Fund rather than reaching out to cultivator to meet their PSL targets, reducing credit access.

Way Forward:

  • Improve the Reach of Institutional Credit:
    • Complete the digitization process and updation of land records in a time bound manner.
    • Reforming of land leasing framework by adopting policies like the Model Land Leasing Act proposed by NITI Aayog, which intends to make all lease agreements formal and enhance access to formal credit.
    • Under Andhra Pradesh Land Licensed Cultivators Act, 2011, Loan Eligibility Cards (LECs) were issued to tenant farmers, allowing them to approach banks for credit.
    • Establish a federal institution in agriculture on the lines of GST Council to enable consultation with states during formulation & implementation of reforms.
  • Addressing regional disparity: PSL guidelines should be revisited for improving the credit off-take in central, eastern and north eastern states.
  • Increasing Credit Flow to Allied Activities: Set separate targets for loans towards allied activities under Ground Level Credit (GLC) & Priority Sector Lending (PSL) guidelines.
  • Enhancing the sub-target of SMFs under PSL:
    • Considering that total operated area held by SMFs would amount to 51.85% by the year 2020-21, increase the share of agricultural credit under PSL to SMFs to 10% from current 8%.
    • Create a better mechanism to estimate oral lessees, sharecroppers and tenant farmers, which have significant presence across the states.
  • Agricultural Loans against Gold as Collateral: Banks should develop an MIS to flag agricultural loans sanctioned against gold as collateral in CBS in order to segregate such loans for effective monitoring of end use of funds.
  • Utilizing Farmer Producer Organizations (FPOs):
    • NABARD should promote women-oriented FPOs by identifying successful women SHGs o Government should expand the scope of its credit guarantee programe through Small Farmers’ Agribusiness Consortium (SFAC).
  • Database for Indian Agriculture sector: Develop a centralized database capturing details related to crops cultivated, cropping pattern, output, sown/irrigated area, health of soil, natural calamity, etc. Besides, farmer-wise details like identity, land records, loan availed, subsidy given, insurance and details of crop cultivated etc. should also be captured.

Editorial: The shipping sector is at sea


  • The major economies of the world have always realised the potential of shipping as a contributor to economic growth. Today, for instance, control of the seas is a key component of China’s Belt and Road Initiative (BRI). China is trying to take control of the Bay of Bengal and the Indian Ocean Region.


  • GS Paper 3:  Infrastructure (energy, ports, roads, airports, railways);

Mains Questions:

  1. Sagarmala provides hope for improving carrying capacity and developing infrastructure and ports. 15 Marks

Dimensions of the Article:

  • Status of Maritime Sector in India:
  • About Sagarmala Project:
  • Components of Sagarmala Programme are:
  • Advantages of Sagarmala Projects:
  • Conclusion:

Status of Maritime Sector in India:

The growth of India’s maritime sector has been mired by many developmental, procedural and policy related challenges. Some of them are listed below:

  • Involvement of multiple agencies in development of infrastructure to promote industrialization, trade, tourism and transportation across country.
  • Presence of a dual institutional structure that has led to development of Major and Minor ports as individual projects.
  • Lack of infrastructure for evacuation at major and minor ports leading to sub-optimal transport modal mix.
  • Limited hinterland linkages that in turn increases the cost of transportation and cargo movement.
  • Limited development of coastal centers for manufacturing, urban and economic activities.
  • Low penetration of coastal and inland shipping in India due to limited facilities, higher costs and policy constraints.
  • Presence of selective mechanization and procedural bottlenecks at ports.
  • Lack of scale, deep draft and other facilities at various ports in India.

About Sagarmala Project:

“Sagar Mala” is a strategic, customer-oriented initiative of Government of India to evolve a model of port led development whereby India’s long coastline will become the gateway of India’s prosperity.

  • It envisages transforming the existing Ports into modern world class Ports on the one hand and developing new world class Ports, based on the requirement, on the other hand.
  • Sagar Mala aims to develop Ports, hinterland and efficient evacuation systems through road, rail, inland and coastal waterways resulting in Ports becoming the drivers of economic activity in coastal areas.
  • It envisages the growth of coastal and inland shipping as a major mode of transport for carriage of goods and people along the coastal and riverine economic centers.
  • As an outcome, the Sagar Mala would integrate the hinterland projects of Industrial and Freight Corridors with the maritime developments to offer efficient and seamless transport for both EXIM and domestic sectors thereby reducing logistics costs for the customer and making exports more competitive.
  • The Union Cabinet chaired by the Prime Minister has given its ‘in-principle’ approval for the concept and institutional framework of the Sagar Mala Project.

Components of Sagarmala Programe are:

  • Port Modernization & New Port Development: De-bottlenecking and capacity expansion of existing ports and development of new greenfield ports
  • Port Connectivity Enhancement: Enhancing the connectivity of the ports to the hinterland, optimizing cost and time of cargo movement through multi-modal logistics solutions including domestic waterways (inland water transport and coastal shipping)
  • Port-linked Industrialization: Developing port-proximate industrial clusters and Coastal Economic Zones to reduce logistics cost and time of EXIM and domestic cargo
  • Coastal Community Development Promoting: sustainable development of coastal communities through skill development & livelihood generation activities, fisheries development, coastal tourism etc.
  • Coastal Shipping & Inland Waterways Transport: Impetus to move cargo through the sustainable and environment-friendly coastal and inland waterways mode.

Advantages of Sagarmala Projects:

  • Employment Generation: Sagar Mala will lead to large-scale employment generation of skilled and semiskilled manpower. Employment generation will be in industrial clusters and parks, large ports, maritime services, logistics services, and other sectors of the economy that will be directly and indirectly impacted by port-led development under Sagarmala.
  • Increase in Industrial Output: Manufacture of ships, vessels, cruise ships, barges and tugs will also increase industrial output and also contribute to employment generation.
  • Sustainable Development: Implementation of Sagarmala will also result in effective steps to ensure sustainable development of the population living in the Coastal Economic Zones (CEZ) by synergizing and coordinating with State Governments and line Ministries of Central Government through their existing schemes and programmes such as those related to community and rural development, tribal development and employment generation, fisheries, skill development, tourism promotion etc. Today about 70 lakh people are dependent on fisheries for their livelihood.
  • Simplified Procedures: It also aims at simplifying procedures used at ports for cargo movement and promotes usage of electronic channels for information exchange leading to quick, efficient, hassle-free and seamless cargo movement.


The Sagar Mala Project therefore intends to achieve the broad objectives of enhancing the capacity of major and non-major ports and modernizing them to make them efficient, thereby enabling them to become drivers of port-led economic development, optimizing the use of existing and future transport assets and developing new lines/linkages for transport (including roads, rail, inland waterways and coastal routes), setting up of logistics hubs, and establishment of industries and manufacturing centers to be served by the ports in EXIM and domestic trade.

February 2024