Financials

<p style="text-align: justify;">The perspective for the next twenty-five years for any State in India presents a major challenge as the scenario which would evolve in terms of technology, economic changes, demographic profile, changing consumer trends and the consequent impact on production, changes in the financial ecosystem, and climate change are imponderables.&nbsp;</p><p style="text-align: justify;">For example, a scenario could evolve that in a hill state, short-term credit could be more in demand by FPOs and other aggregators rather than limited to individual farmers for crop loans.&nbsp;</p><h2 style="text-align: justify;"><span style="font-size: 14pt;">Evolution of Fintech in Rural Sector</span></h2><p style="text-align: justify;"><span style="font-size: 12pt;">Fintech evolving in rural areas is also a gray area in terms of evolution, growth, and credit planning. However, a vision must be evolved and a broad array of goals drawn up. Then we can disaggregate and draw up a plan for the next five years and, after that, project in terms of the two decades to follow.&nbsp;</span></p><p style="text-align: justify;">The plan would encompass and indicate the perspective for the next five years in any State and take into account the following:</p><ul><li style="list-style-type: none;"><ul><li style="text-align: justify;">Existing infrastructure and infrastructure getting operationalized</li><li style="text-align: justify;">Credit flow by banks and NBFCs and the trends across sectors Agriculture, Industry Services, Exports, Urban Branches, and Rural / Semi Urban Branches</li><li style="text-align: justify;">Plans of the State Government with specific reference to Agriculture inclusive of Horticulture, Animal Husbandry, Fishery, Markets, and Storage</li><li style="text-align: justify;">Existing programs underway for development with support from multilateral institutions</li><li style="text-align: justify;">Evolving Industrial sector and sectors such as Agro / Food Processing</li><li style="text-align: justify;">Growth and evolution of the rural and semi-urban housing sector and social infrastructure</li><li style="text-align: justify;">Microfinance trends and evolution. Plus, loans from State Owned Corporations such as SC / ST and Finance Corporations</li><li style="text-align: justify;">Refinance and Infrastructure Support (including watersheds/spring sheds) by NABARD and their perspective as shared by the State Focus Paper and District Plans. SIDBI is also in addition</li><li style="text-align: justify;">Strengthening of the credit dispensation institutions, especially RFIs (Rural Financial Institutions)</li></ul></li></ul><p>&nbsp;</p><p>The pillars on which the plan can be projected and then subsequently reprioritized are:</p><ul><li style="list-style-type: none;"><ul><li>Traditional Agricultural sector and production-oriented crop loan</li><li>Traditional investment credit activities such as Farm Mechanisation, Irrigation, Land Dev, etc.</li><li>Efforts as regards small/marginal/tenant farmers</li><li>Advent of start-ups and their impact. Incentivising exports &nbsp;</li><li>Encouraging Agri Preneurs and especially the contribution by the Incubation Centres</li><li>Initiatives such as vertical farming near major metros and impact</li><li>Trends in the improvement of productivity and production of crops including cotton etc. and mapping climate impact</li><li>Initiatives in Agriculture / Horticulture such as Replacing and rejuvenation of aging fruit trees or improving the productivity of vegetable products, or expansion of the area</li><li>Improvement of the storage sector and Agro Processing Sector, especially of rural markets and basic processing sectors and cold stores</li><li>Impact of the Central Government Schemes viz of Saturation of KCCs AIF AHIDF and FPOs and the schemes for MSMEs and Housing</li><li>Strengthening of the Animal Husbandry / Fishery Sector</li><li>Technology-oriented protection agriculture, precision agriculture, micro irrigation</li></ul></li></ul><p>&nbsp;</p><p style="text-align: justify;">The increasing use of Biotechnology and its consequent enhancement of productivity. Moving farm-oriented labor to manufacture/services and its outreach through farm cum retail stores, rural health centers, education centers, effective extension, and ACABC trained trainees, etc. Plus, the level and quality of education in agriculture.&nbsp;</p><p style="text-align: justify;"><span style="font-size: 10pt;"><em>This article was contributed by our expert <a href="https://www.linkedin.com/in/dinesh-kumar-kapila-3b096812/">Dinesh Kumar Kapila</a></em></span></p><p style="text-align: justify;">&nbsp;</p><h3 style="text-align: justify;"><span style="font-size: 18pt;">Frequently Asked Questions Answered by Dinesh Kumar Kapila</span></h3><h2 style="text-align: justify;"><span style="font-size: 12pt;">1. What steps have been taken by the government to improve the rural credit system?</span></h2><p style="text-align: justify;"><span style="font-size: 12pt;">The GOI / RBI / NABARD undertake varied initiatives to enhance rural credit flow and improve it. The GOI is the sovereign and hence plays the most important role. Quasi Sovereign entities such as the RBI/NABARD supplement and facilitate the process.&nbsp;</span></p><p style="text-align: justify;">The computerization of PACS, digitization of land records, enhancing the cultivation of oilseeds and pulses, funding from NABARD for Agri/Rural based start-ups, natural farming, river linkage projects, water conservation - the Rs 10000 crore fund with NABARD, ENAM 1000 more Mandis, KCCs for fishery/animal husbandry, etc. are some initiatives.&nbsp;</p><h2 style="text-align: justify;"><span style="font-size: 12pt;">2. What are the problems of agricultural credit?</span></h2><p style="text-align: justify;">The preponderance of tenant/small/marginal farmers leads to insufficient credit, reduced investments in land/farming, and non-viable operations, which impact the ability to lend by financial institutions. Then overdue, whether by drought/climate change/excess precipitation are, a gray area.&nbsp;</p><p style="text-align: justify;">Institutional coverage remains a concern in specific regions and is mainly addressed by Commission Agents/Moneylenders. Alongside even where institutional coverage is with depth and width, the social aspects are addressed by commission agents. There could be a mismatch in terms of the actual requirements of farmers and the actual sanctions. There could be sectoral issues too.&nbsp;</p><h2 style="text-align: justify;"><span style="font-size: 12pt;">3. How are credit and marketing significant for the process of agriculture?</span></h2><p style="text-align: justify;">Agriculture credit is the prime mover and lever for crop loan operations and enabling due to transportation to markets. It facilitates investments in land and farm mechanization, land development, plantation, and horticulture.&nbsp;</p><h2 style="text-align: justify;"><span style="font-size: 12pt;">4. Which source of credit is better for farmers?</span></h2><p style="text-align: justify;"><span style="font-size: 12pt;">This is unclear; by logic, it is crop loans from banks - commercial/cooperative / RRBs / SFBs. This attracts interest subvention from the GOI of 3% on prompt repayment. Crop loans carry a fixed interest rate of 7 % only up to a limit of Rs 3 lakh.&nbsp;</span></p><h2 style="text-align: justify;"><span style="font-size: 12pt;">5. What is the current situation of Agri fintech?</span></h2><p><span style="font-size: 12pt;">Fintech in the rural context is still to be marked by a significant presence. This is largely concentrated in urban areas. The enhanced availability of smartphones and internet/broadband services could speed it up. It can only be a tap-off from Banks, considering the interest subvention/concessions on specific schemes, if Banks extend credit. </span></p><p><span style="font-size: 12pt;">Fintechs will be watched closely as rural credit is complex and subject to political interventions in case of aggressive marketing or recovery. More so, the irregularity of credit flows is also a challenge.&nbsp;</span></p><h2><span style="font-size: 12pt;">6. What is the target of credit flow to the agriculture sector during 2022-23?</span></h2><p><span style="font-size: 12pt;">Rs 18 lakh crore is the target for this year, up from Rs 16.50 lakh crore.</span></p><p>&nbsp;</p>