Structure of farm credit in Himachal Pradesh and role in agricultural development
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Date
2023-03-21
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CSK HPKV, Palampur
Abstract
Credit plays a vital role in capitalizing the farmers to enhance farm productivity by increasing investment in
quality inputs and efficient technologies. With the commercialization and modernization of agricultural practices,
the credit needs in Himachal Pradesh are increasing. Therefore, the present study was conducted to comprehend
the trends in the allocation of agricultural credit, extent of financial inclusion and its impact on farm investment,
productivity and income levels of the farmers in Himachal Pradesh. Two-stage random sampling design was used
to select two blocks from each district in the first stage and a total sample of 200 loanee farmers in the second
stage of sampling by proportional allocation method. The farmers were then classified into small (n=109) and large
(n=91) categories based on the total land holding size. Both primary and secondary data were collected in
accordance with the objectives of the study. The state's dependency on Regional Rural Banks (RRBs) and co operative banks for agricultural credit disbursement (through bank branch network position and ATMs) was high,
particularly in rural areas. However, over the years, growth in these rural financial institutions was substantially
lower than in the private sector banks. The amount sanctioned for the agricultural term loan, agricultural
infrastructure and agricultural ancillary activities had declined over the years and was considerably lower (21.53%)
than the short-term crop loan (78.47%). The overall PCA score of the Financial Inclusion Index was 0.41,
reflecting a medium-level of financial inclusion in the study area. The geographical penetration, affordability,
usage, financial literacy and quality of financial products and services provided by formal institutions were in the
medium range of PCA scores. However, the accessibility and ease components of the Financial Inclusion Index
were observed at a lower range of PCA scores in the study area. The cultivated land on overall farms was
significantly increased by 1.12 per cent due to the diversion of credit towards the increase in leased-in land
holdings (4.49%) in the study area. The financial aid led to a significant shift from cereal and fodder crops to
vegetable cultivation. The use of hybrid seeds, fertilizers, pesticides and hired labour increased after the financial
aid. Due to this, the total cost of cultivation (Cost C3
) for all the Kharif and Rabi season crops was substantially
increased. The increase in the use of quality inputs led to an increase in the productivity levels of all the major
crops in the study area. The gross farm income on overall farms was significantly increased by about 40 per cent
after availing the farm credit. The income from vegetable cultivation increased by the highest proportion on both
the small and large farms, constituting an overall increase of 73.74 per cent. The scale of the amount sanctioned to
the sample farms varied positively with the land holding size, while the repayment of credit was lower on small
farms than the large farms. Most sample farmers attained credit from the scheduled banks through KCC, followed
by the private moneylenders and Primary Agricultural Credit Societies (PACS). With the increase in the size of
cultivated land holdings and dependency on agriculture as the primary source of income, the probability of credit
acquisition from private moneylenders increased on sample farms. The asset status and the gross farm income of
the farmers had a significantly negative impact on the odds of being a delinquent or a defaulter. The interest rates
charged by the financial institutions reflected a positively significant relationship with the probability of being a
defaulter or a delinquent in the study area. The lack of collateral security, insufficient credit limit offered by banks
and fear of losing agricultural land were major problems for credit acquisition through institutional sources.
Whereas, the increasing input costs and rising household expenditures negatively impacted the repayment and use
of credit. Based on the findings, the panchayat-level identification of needy farmers was suggested as a measure to
restrict the diversion of credit towards non-agricultural purposes.