The Hindu : Institutional credit to agriculture declines

Online edition of India's National Newspaper
Friday, Feb 20, 2004

Karnataka

Karnataka - Mangalore

Institutional credit to agriculture declines

By Our Staff Correspondent

MANGALORE, FEB. 19. The flow of institutional credit to agriculture during the post-World Trade Organisation period is not positive. The trend may not help agriculturists, particularly small and marginal farmers, and this demands some urgent policy intervention, according to a paper presented at the two-day national seminar on "WTO and the banking sector in India'', which concluded in Mangalore University on Tuesday.

The seminar was organised by the Corporation Bank Chair in Bank Management at the university.

The paper by Vishwanatha, Professor, and Jayasheela, Reader, Department of Economics of the university, says that agricultural credit has a significant positive relationship with agricultural output. They studied the compound growth rates of agricultural credit provided by different institutions during the pre-reform period (1980-81 to 1990-91), reform period 1 (1991-92 to 1994-95 or pre-WTO period), whole reform period (1991-92 to 1999-2000), reform period 2 (1995-96 to 1999-2000 or post WTO period), and total period (1980-2000).

The study depended on secondary data collected from various issues of the Reserve Bank of India reports on currency and finance. The paper says that the cooperatives, commercial banks, and regional rural banks play a leading role in the provision of institutional credit. The flow of institutional credit to the agricultural sector, particularly from commercial banks and regional rural banks, has shown an increasing trend over the years, while the share of cooperatives has shown a decreasing trend.

The paper compares growth rates of loans given and loans outstanding with regard to these institutions during the five periods. As far as cooperatives are concerned during the reform period 2, the disbursement of loans and total loans showed a declining trend over those of the reform period 1 as well as in the pre-reform period. The total loans, including short-term and term loans of all the three institutions (commercial and cooperative banks and regional rural banks), show that in the post-WTO period, the growth rate of short-term loans has considerably declined to 11.32 per cent as against 22.29 per cent in the reform period 1. Even the total of both short-term and term loans has significantly declined to 11.08 per cent during the reform period 2 from 17.83 per cent during the reform period. The WTO agreement on agriculture has increased market orientation in agricultural trade through progressively minimising distortions caused by production and export subsidies and restricted market access, the paper says.

Delivering a special lecture on financial services agreement at the seminar, P.P. Prabhu, former Union Commerce Secretary, said liberalisation of the financial sector under the General Agreement on Trade in Services would have positive consequences. The agreement did not prevent measures being taken for prudent reasons such as those for protection of investors or persons to whom a financial service supplier owed a fiduciary duty or to ensure integrity and stability of financial system.

Mr. Prabhu said freedom for macroeconomic policy management was also not affected in such a scenario. Multilateral commitments lent certainty to policies and enhanced possibilities of foreign investment. Liberalisation and competition would help improve sectoral efficiency, lower costs, spur involvement in quality, and encourage adoption of improved and efficient practices.

Technological progress, development of new financial instruments, and greater choice of financial services would get greater fillip.

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