More Banking in Agriculture, More Output

By Rajshree Gupta

Don’t have an iPhone? Don’t have a home? Get it on EMIs. Banks have made life so easy. Take a loan and repay it later. But what if I can’t find anybody to give me credit? Or who will lend me if there is any uncertainty in repaying the loan? This is the basic problem faced by more than half of the population of the country. Life might be easy for us but not for those who commit suicide because of lack of finance, and unfortunately, our farmers top this list.

The financial system of any country is its backbone for economic growth. In India, the financial system is majorly represented by the banking sector. The primary functions of commercial banks include accepting deposits and granting loans and advances.

Keeping other functions aside, loans have always been an important part of India since ages when farmers used to take credit from the moneylenders (“zamindars” and “sahukars”). Same role is now played majorly by the commercial banks. Farmers now take loans from these banks at a lower interest rate and work hard to take agriculture to new heights. Though there has been some growth in the agricultural sector but this growth in agriculture (2.8% approximately) is not significant as compared to industrial and service sector where growth rates have been 3.4% and 8.9% respectively. Therefore, India’s economic growth is much attributed to the growth of services in India, not to its primary occupation: agriculture.

India is by and large an agrarian economy. The role of agriculture is vital for Indian economic development. Even during the Nehru Era when much attention was paid to the development of industrial sector. Jawahar Lal Nehru, India’s prime minister at that time, always mentioned the importance of agriculture in his speeches for overall development of the economy. According to him, growth of industries or anything else should go hand in hand with growth in agriculture. This is true even after 67 years of independence.


Thus, finance in agriculture is as important as development of technologies. The share that agriculture gets out of occupation-wise distribution of credit by commercial banks is only 12%. Commercial banks (or even Gramin banks) are not present in many remote areas of the country, where agriculture may thrive. Thus, the first and foremost issue with agriculture in India is credit. With growing competition, farmers require better seeds, better fertilizers, latest technology etc, and all this requires credit. Many times, banks are too sceptical to lend to small farmers because of risk of crop failure for various reasons. Self-help groups help a lot in strengthening the living conditions internally but there is immediate need for external help too as growth results are not up to the mark. The share of agriculture in GDP has declined from 29.34% in 1991 to 13.72% in 2012, which is very less when 50% of country’s population is involved in agriculture which implies the existing banking in agriculture is not sufficient enough.

This slow growth of the heart of India is not only an obstacle in the path of economic glory but also a hindrance for society’s welfare. Income distribution is biased and getting more biased with the rapid development in other sectors of economy like in the service sector. The gap between the rich and poor is widening more than ever. Rapid growth of Agriculture is essential not only to sustain higher growth rates of overall economy but also to make distribution of income and wealth fairer, which can be catalyzed by “more BANKING facilities in AGRICULTURE”.


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