The Situation of Agricultural Credit in Andhra Pradesh Graph 1 Graph

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1 The Situation of Agricultural Credit in Andhra Pradesh Unseasonal weather changes, droughts, floods, pest attacks, failure of irrigation, shortages of electricity and unpredictable prices of the output are only some of the risks that are involved in cultivation. For all the risks involved in agriculture the returns are quite modest. But, this modest undertaking provides employment to more than 60 percent of Andhra Pradesh population. Hence, availability of timely, adequate and affordable credit to agriculture assumes importance. But it is clear that agriculture in AP has not received adequate credit support from formal financial sector, which has the capacity to provide timely, adequate and affordable credit. Suicides of hundreds of farmers in AP, as a result of massive debt burden in the period post liberalisation, are evidence to the neglect of agriculture by the institutional sources of credit, particularly the banking sector. This neglect clearly comes out even in the official data. According to AIDS data, share of institutional sources in the debt owed by cultivators of AP was 34.1 percent in 1991 and decline to 32.7 percent by These figures for India were respectively 66.3 and 67.2 percent. As a result of paucity of credit from institutional sources, it is found that in AP a large number of loans are taken at very high interest rates. Share of debt contracted by cultivators in AP at rates more than 20 percent was 58 percent in 1991 and 66 percent The respective shares for India were 23.9 and 30 percent. In the recent years, there has been implementation of various banking policies like, doubling of the credit in three years, agricultural debt waiver and debt relief scheme, interest subvention scheme, extension of loans to joint liability groups (JLGs) and licensed tenant card holders etc. In this background, it is the intention of the paper to look at the data on bank credit to agriculture in Andhra Pradesh, track the changes in the past two decades, in the back ground of agrarian structure of Andhra Pradesh. I The Share of agricultural credit in total credit disbursed in AP by commercial banks fell from 25 percent in 1991 to around 18 percent in At the same time agriculture s share in state domestic product fell from 33 percent to 20 percent (Graph 1). When compared to the contribution of agriculture to the total income of the state, one would have to say that quantitatively at least, there was a marked improvement in the provision of bank credit to agriculture, as by 2010 share of agriculture in bank credit came very close to its share in GSDP of AP state. Graph 1 Source: Based on Basic Statistical Returns, various issues, RBI and National Account Statistics, Various Years. But one has to note that even though at present the contribution of agriculture to GSDP is at about 21 percent, it is still the most important provider of livelihood to 67 percent of the state s population which depend on agriculture and allied sectors. This calls for a larger share of credit to agriculture, since, unlike industry and business surplus generated in agriculture is very little and in every agricultural season the farmers depend on credit, institutional or otherwise, to meet their operational expenditure and capital expenditure. Graph Source: Calculated from data of Basic Statistical Returns RBI and Sri Krishna Committee Report Another parameter to understand the changes in the provision of agricultural credit is the quantum of credit disbursed per hectare of cropped area. The graph above maps the credit per hectare of gross cropped area for Andhra Pradesh. Here only direct credit is taken in to account as this actually is what was meant to be received by farmers for the purpose of

2 cultivation. As we can see since 1991, in the subsequent 20 years, there was tremendous increase in credit per hectare of gross cropped area. But in the first five years from 1991 to 1995 it actually fell from Rs 3738 to Rs Then it grew at a modest pace to Rs 7509 in From then on credit per hectare tripled by As we see in table 6, CAGR of credit per hectare at constant prices was very low at 1 percent for , 6.2 percent for , 14.4 for and 21.2 percent for and 9.3 percent for the whole period. It seems to be the case that though in the immediate years after liberalisation there was a squeeze on agricultural credit, there has been an effort at improving the supply of credit to agriculture subsequently. Credit Deposit Ratios of rural branches North Coasta Andhra (rural) South Coastal Andhra (rural) Rayalaseema (rural) North Telangana (rural) South Telangana (rural) AP rural AP total India (rural) India (Total) Source: Based on, Basic Statistical Returns, Various Issues, RBI. Since agriculture dominates lending in rural areas, a survey of CD ratios would give an idea of whether resources are being diverted away from agriculture or directed towards agriculture from other sources of deposits. At all India level rural CD ratios are lower than the overall CD ratios, indicating a diversion of deposits from rural areas to the rest of India for credit creation. But in Andhra Pradesh the CD ratios of rural branches are very high in comparison to both the state level and country level CD ratios. Resources mobilised elsewhere are being lent in rural Andhra Pradesh. Following the general trend at all India level CD ratios of rural Andhra declined between 1991 and 2001 from 95 percent to 76 percent and increased to 112 by In contrast, rural south telangana saw rise in credit deposit ratios between 1991 and 2001 from 110 percent to 128 percent and a decline after that to 95 percent in North coastal Andhra had the lowest rural CD ratios. Coverage of farmers looked at in terms of number of accounts of direct agricultural credit declined from 37 lakhs to 31 lakhs from 1991 to 2001 (Graph 3). It started recovering from 2002 to onwards. The number of accounts saw a large growth since 2005 onwards. Between 2004 and 2010 number of accounts doubled from 36 lakhs to 72 lakhs. If we assume that each account represents a landholding, then the coverage improved from 27 accounts per 100 land holdings in 2001 to 56 accounts per 100 land holding in This is remarkable progress in the last decade considering the decline in the previous decade. Graph Source: Basic Statistical Returns, Various Issues, RBI CAGR Cost of Production to 2010 (%) paddy

3 Jowar maize Urad Moong sunflower Ground nut Cotton sugar cane Credit per hectare Sources: Cost of Cultivation Surveys, Various Years, Ministry of Agriculture. From the table above we also notice that bank credit grew at an annual growth rate much higher than the rate of growth of cost of production of principal crops between 2000 and The cost of cultivation of paddy and sugar cane grew at CAGR of 7 percent and cotton and ground nut at 9 percent, whereas credit per hectare grew at 23 percent CAGR. This should mean reduced dependency on informal sources for meeting cultivation expenses. To state briefly, in the first decade banks performed dismally in providing for agriculture. Not only was the improvement in quantity supplied meagre, but the actual number of farmers covered by the banks declined. In the second decade, especially in the later half credit growth really picked up and coverage farmers also improved vastly. II The graph below shows agricultural credit according to place of utilisation. Clearly agricultural credit being utilised in metropolitan and urban areas has been on the rise. It has risen from 16.2 percent in 1991 to 18.9 in the year 2000 and then reached to 30 percent by the year Of course, activities like mushroom farming can be undertaken in cities and some amount of horticultural farming is done in the outskirts of cities. But these activities are not large enough to warrant 30 percent (in 2010) of the total agricultural credit. One may assume that, since indirect credit to farmers is usually given to other financial entities for onlending to agriculture, credit to state electricity boards etc the place of utilisation would be shown as urban and metropolitan areas. Hence, the large increase in the volume of agricultural credit in urban and metro areas was the result of this practice. Graph Source: Basic Statistical Returns, Various Issues, RBI. But, even if one were to look at direct agricultural credit, which is meant to be given directly to farmers, the large share of urban and metro areas is intriguing. Its share has been 10.9 in the year It has grown to 13.7 by 2000 and subsequently to 23.2 percent by One cannot but wonder who are those farmers that are cultivating in metropolitan and urban areas and are in need of credit. Clearly, credit that is meant to be given to farmers is being given elsewhere. It is mainly the private sector banks, particularly the new private sector banks which were opened after 1996 that disburse credit in urban and metropolitan areas. These banks from their inception are more profit oriented and have little interest in expanding to rural areas and less banked areas. Consequently, they opened only few branches in rural areas, as they find rural branches not very remunerative. Disbursing the mandated 18 percent of their total bank credit to agriculture, of which three quarters have to be direct credit to agriculture, without a net work of rural branches is a difficult task. But somehow, these new private sector banks manage to give agricultural credit in urban and metropolitan areas. They receive support from the central bank in this endeavour, which has been coming up frequently with measures to dilute the concept of agricultural credit. Instead of compelling the reluctant banks to lend to

4 the farmers directly, RBI from time to time includes more and more activities other than actual farming under the head of agricultural credit. So, we find that bank lending to big retail chains, to set up cold storages for vegetable produce would be considered lending to agriculture. Even then, such amounts of direct credit can be disbursed for utilisation in urban areas by convenient interpretation of rules. Some of these banks also have been inflating their portfolio of agricultural credit by including the loans they temporarily buy from the public sector banks by discounting them at much lower interest rates than the original loans given to the farmers, thereby inflating the principal. When reserve bank comes up with circulars forbidding such practices, they come up with new ways to avoid lending to farmers. Even after all this, we find that most new private banks not able to meet mandatory agricultural credit disbursal targets. Though, in public sector banks too such practices can be found, it is to a much lesser extent as they have a good rural branch network developed over decades and bound as they are by government s political compulsions, they cannot ignore agriculture as the private sector banks do. Apart from what the RBI regulations allow the banks to consider as agricultural credit, banks additionally seem to take it upon themselves to liberally interpret agricultural credit. The recent CAG s report on agricultural debt waiver and debt relief scheme throws light on certain questionable interpretations of agricultural credit prevalent among the banks. Report found that a considerable amount of loans that have been waived as part of the scheme were in reality non agricultural loans such as personal loans, vehicular finance, business loans, loans for purchase of shop, loans for purchase of land (real estate) etc. This only confirms what has been known informally for some time, that banks are reporting a good amount of non agricultural loans as agricultural loans. In one case, upon finding that a private commercial bank waived loans taken to the tune of Rs 3 to 5 crores by various MFIs totalling an amount of RS 164 crores, as credit given to farmers, CAG wrote to the bank. The concerned bank replied that the bank in partnership with the MFIs dispensed the loans to farmers and hence the loan is considered direct agricultural credit, therefore eligible for the debt waiver and relief scheme. But on further inspection CAG found that the bank has no customer relation or knowledge of the any of the recipients of the loan and it has no knowledge of whether the loans has been used by the MFIs for on lending to farmers (this way it may at least be considered indirect credit to agriculture). CAG found that contrary to the bank s claims the loan was given to MFI and not to farmers, hence cannot be considered direct agricultural credit. This one case was found in the very small sample of loan accounts which the CAG surveyed. One can safely assume that there will be considerable amount of such questionable lending being masqueraded as direct agricultural credit. How else can banks with no presence in areas other than cities meet their agriculture credit targets? share of agro and food processing Share of loans to units with plant and Share of corporates and corporates and machinery up to Rs partnership firms in partnership firms 10 crore direct credit Source: Statistical s Relating to Banks in India, 2008, 2010 and 2011, RBI. The table 3 above gives the share of loans given to corporate and partnership firms and to agro and food processing units with plant and machinery up to Rs 10 crore, as a percentage of

5 total agricultural credit disbursed in Andhra Pradesh. This data is available only from As we see, in 2008 nearly 14 percent of the agricultural credit was given to corporates and partnership firms. In all the years given above close to 20 percent of agricultural credit went to these two categories. It is to be noted that loans to corporates and firms up Rs. 1 crore and 1/3 of the amount exceeding 1 crore were considered direct credit to agriculture. So, Even from direct credit around 17 percent in 2008, 11 percent in 2010 and 10 percent in 2011 actually went to corporates and firms. Graph Source: Basic Statistical Returns, Various Issues, RBI Compared to the situation of indirect agricultural credit at all India level, Andhra Pradesh seemed to have fared better (Graph 5). While share of direct credit stayed around 75 percent at all India level in the recent years, it remained above 80 most of the time for Andhra Pradesh. But, there is no denying that there has been a trend of decline in the share of direct credit in the second half, since The concept of indirect credit itself is contrary to the expected role of the banks that they would be directly involved in assessing farmer s requirement and give him loan at reasonable rate of interest that are not exploitative. Banks lending to NBFCs, Micro finance institutions, NGOs and other entities for on lending to farmers is considered indirect credit. But, there is a great deal of difference between banks lending directly to farmers and lending through the above mentioned intermediaries. While, banks are bound by regulation not to charge farmers interest rates beyond certain ceiling rate NBFCs and microfinance institutions are not bound by the same. As some studies have shown, MFIs often charge interest rates that are no different from the rates charged by money lenders. NBFCs too charge rates that are far higher than the usual bank rates for agricultural credit. Further, the interest subsidies government offers to farmers do not apply to the loans farmers get through MFIs and NBFCs. Moreover, it is difficult and costly for the banks to ensure that these loans actually go to farmers, assuming that they want to do so. RBI may conduct frequent inspections and make sure that banks are complying with its instructions regarding agricultural credit, but it is lot more difficult to do the same with these non bank entities. Commercial banks are allowed to include loans to RRBs for on lending to agriculture as indirect credit to agriculture. This will amount to a double counting of these loans in total agricultural credit, once as indirect credit given by commercial banks and another time as direct credit given to farmers by RRBs. Further, the inclusion of credit given for setting up of cold storages, ware houses, market yards, godowns and silos, credit given to food and agro processing industries, credit given to arthiyas (market agents), credit given to dealers of agricultural equipment even if indirect, gives an escape route for banks to avoid lending to farmers. Under these categories, big retailers like reliance, big bazaar, Spencer s etc, can avail and are availing loans that will be considered as indirect agricultural credit without restrictions of credit amount, because there are no restrictions on where these cold storages and ware houses can be built. If the central bank really meant that groups of farmers or farmer cooperatives should to avail this facility to build ware houses for grain storage or cold storages for vegetable storage. It should specify the types of entities that can be lent to and lay down guidelines restricting to rural or semi urban areas. At least this would have reduced the likelihood of banks lending to big corporate chains and other business entities that do not have any interest in agriculture. One does not deny the fact that retailers of fertilizers and pesticides, dealers in agricultural equipment like sprayers need bank credit. But credit to them would be credit to retail traders and cannot be credit to agriculture as it is being considered by the banking regulations. Credit given to food and agro processing industries should be considered as credit to SSI sector to which they really belong. When calculating agriculture s contribution to GSDP the above

6 heads do not come under agriculture, and hence they cannot be allowed to cut into the share of agriculture. Agriculture should at the least get as much share in the bank credit as its share in GSDP if not more in view of its importance to the economy and the livelihoods of more than half of AP. Even though, as we have seen in a section before, by the year 2010 the share of agriculture in bank credit came close to equalling its share in the GSDP of Andhra Pradesh, the inclusion of all and sundry activities that have some relation, sometimes distant, to agriculture, means that actual share of credit going to farmers would be far less than the declared share. III There is a considerable disparity in the banking sector spread and credit supply across regions. Srikakulam, Vizayanagram and Visakhpatnam form north coastal Andhra. Agriculture is comparatively backward in this region. Rest of coastal Andhra districts form the south coastal Andhra. This region mainly consists of Godavari, Krishna and Penna river deltas. It is agriculturally the most developed region. Anathapur, Cuddapah, Chittor and Kurnool form the Rayalaseem region. This region is dominated by dry land, rain fed agriculture. Almost half of the land in this region is under cultivation of oilseeds, mostly groundnut. South Telangana districts are Medak, Mehboobnagar, Rangareddy and Nalgonda. These four districts are dry districts with backward agriculture. But, due to proximity to Hyderabad poultry farms, farm houses, and corporate farms growing horticulture crops have a presence here. North Telangana is agriculturally more developed than the south and can be ranked second after south coastal Andhra in agricultural development. Public sector banks were mainly involved in providing agricultural credit in all the five regions. Out of the 2873 rural branches except 68, rest all belong to public sector banks. Within the public sector banks RRBs had comparatively more branches in the backward regions. Of all the rural branches 57 percent in Rayalaseema, 49 percent north coastal Andhra, 47 percent in north telangana and 43 percent south telangana and only 25 percent in south coastal Andhra belong to the RRBs. It is important to note that the though RRBs play an important role in providing banking in backward areas, interest rates charged by RRBs are relatively high compared to the interest rates charged by the other public sector banks, due to the high cost of funds for these banks. This would mean higher cost of loans to those areas which are relatively under served by the public sector commercial banks. If we look at the coverage of farmers by banks in 2001 in terms of accounts per 100 land holdings south coastal Andhra had the highest with 32 accounts, followed by Rayalaseema with 29 accounts, North Telangana 25 accounts, South Telangana 21 accounts and North Coastal Andhra 18 accounts. There has been a large variation in the provision of agricultural credit to different regions of Andhra Pradesh. This is to be expected as the importance and scale of agriculture vary across regions. Banks generally would provide more credit to more agriculturally developed regions where intensive farming is more prevalent. True to this, banks have been channelizing a large share of their credit to the green revolution areas of Andhra Pradesh. Share of different regions in total agricultural credit HYD NC A SCA RS N T

7 Source: Basic Statistical Returns, various issues, RBI. As expected south coastal Andhra took the lion s share in total agricultural credit ( 4) Interestingly Hyderabad received a large amount of agricultural credit. This could be due to indirect agricultural credit, which tends be given in urban and especially metropolitan areas. As mentioned in the earlier section increasing indirect credit to in agriculture may account for such large share of Hyderabad. Now if we look at the share of different regions in direct credit to agriculture ( 5), it may give a better picture of credit going to farmers of different regions. Hyderabad, having no to agricultural land to speak of, still has some share of direct agricultural credit to its credit. South coastal Andhra had share fluctuating between 44 to 41 percent. Considering that the region accounted for about 30 percent of the gross cropped area, its share in credit seems to be disproportionately high. Rayalaseema accounted for 18 to 20 percent and south telangana between 11 and 15 percent. While the shares of these regions fluctuated somewhat, the share of north telangana showed a clear decline, especially in view of the fact that its share in state s gross cropped area increased in this period. In 2010, Rayalaseema which has about 23 percent of total gross cropped area accounted for 18 percent of the credit, South Telangana with around 17 percent of gross cropped area accounted for 13 percent of the credit and north telangana which accounted for 21 percent of gross cropped area also accounted for 13 percent of the credit. North coastal Andhra which accounted for 9 percent of GCA accounted for around 6 percent of credit. share of different regions in direct agricultural credit NC N HYD A SCA RS T ST 1973[1] [1]

8 Source: Basic Statistical Returns, various issues, RBI. Regions under assured irrigation can cultivate high value crops like sugar cane, cotton, paddy, maize etc.that need large amounts of inputs. Operational expenses for such crops are quiet high (as seen in previous table) in comparison to rain fed crops like jawar, bajra, ragi, urad, moong, arahar etc. Hence, they require larger credit per hectare. This to some extent accounts for the higher than the proportionate share of south coastal Andhra in direct agricultural credit. But it does not completely explain the picture. In the last two decades, percentage of gross irrigated area to gross cropped area increased from 42 percent to 51 percent for north telangana and 32 to 41 percent for south telangana, where as it only went up from 57 to 59 percent in south coastal Andhra and 23 to 25 percent in Rayalaseema ( to ) Clearly, increased area under irrigation would allow the farmers to undertake the cultivation of resource intensive crops and it has happened so. The table below gives the share of paddy, maize, cotton, sugar cane, tobacco and chilli in the GCA of different regions for to Area under paddy declined in all regions except South Telangana. The share of area under all the above crops declined from 66 percent to 62 percent for south coastal Andhra, 19 to 15 percent for Rayalaseema and increased from 43 to 46 percent in north coastal Andhra, 67 to 70 percent in North Telangana and 41 to 53 percent in south telangana. Unless, one presumes that the cost of production of these crops fell drastically Telangana districts, their share in total agricultural credit should have gone up in light of the increase in relative requirements. In Telangana, the increase in area under irrigation was primarily due to utilisation of groundwater through bore wells, the cost of sinking wells which is very in high dry areas, these costs if financed by the banks would have increased Telangana s share of agricultural credit even more. CAGR of direct agricultural credit per hectare at constant prices (%) North Coastal Andhra

9 South Coastal Andhra Rayalaseema North Telangana South Telangana AP Source: Based on Basic statistical returns, various issues, RBI and Sri Krishna Committee Report North Coastal Andhra Rice Maize Sugar Cane Cotton Tobacco Chilli All four South Coastal Andhra Rice Maize Sugar Cane Cotton Tobacco Chilli All four Rayalaseema Rice Maize Sugar Cane Cotton Tobacco Chilli All four North Telangana Rice Maize Sugar Cane Cotton Tobacco Chilli All four South Telangana Rice Maize Sugar Cane Cotton Tobacco Chilli All four Source: Based on Land Use Statistics, Ministry of Agriculture. credit per hectare at constant prices North Coastal Andhra South Coastal Andhra Rayalaseema

10 North Telangana South Telangana Source: Based on Basic statistical returns, various issues, RBI and Sri Krishna Committee Report There is a need for a comparative betterment banking to agriculture in the telangana regions, especially in the northern part. IV One can question as to how much of the credit is actually going to agriculture. There was already some discussion of this in section II. In this section I will look in to the specifities of Andhra Pradesh. In Rayalaseema where there is greater urbanisation, one hears that a good amount of agricultural credit might be going in to real estate and other activities. In recent years there have been reports of businessmen and corporate buying up huge swathes of land that sometimes consist of entire villages for growing horticulture crops. There is no denying that banks increasingly prefer deal with such business ventures to traditional farmers. Similar is the case of south Telangana. As these four districts surround Hyderabad huge tracts of agricultural land in these districts have been bought by real estate businesses. Credit taken on these lands clearly is not going to agriculture. Proximity of Hyderabad also saw land being bought for farm houses, corporate agricultural ventures in to horticulture and poultry. It is possible that a large share of agricultural credit in this regions is going to these ventures. A problem faced by farmers of AP, particularly small and marginal farmers is the lack of proper documentation regarding the ownership. This problem is particularly more acute in Telangana region, where land holders are not entered in to the land register properly due to the land records that have not been updated for decades. The lands that are fragmented and sub fragmented over generations still retains the title of the long ago deceased. The new owners who do not have the title deed or haven t had their name entered as owners in the revenue books, will simply not have access to bank credit, as the pattadar passbook will not be issued unless there is some document of ownership of land. In coastal Andhra while, supply of credit is quite high, how much does this credit actually reach farmers is a question to be asked. Presence of a large share of tenant cultivators in peasantry is an important fact that needs to be noted while talking of credit. In a 2003 village survey (by Rs Rao and M. Bharati, as given in The Report of the commission on farmers welfare 2005) out of in three villages studied in south coastal andhra area under tenancy was found to 50 percent, 69 percent and 18 percent. In two villages of south telangana it was 5 percent to 9 percent. In two villages of north telangana it was 20 percent and 6 percent, in two villages of north coastal Andhra it was 22 percent and 7 percent and in a village survey in Rayalaseema very little area was under tenancy. Another village survey by FAS in 2006 (Ramachandran et. Al) in Krishna district (South Coastal Andhra) found area under tenancy to be 67 percent. Clearly rates of tenancy are phenomenally high in south coastal Andhra. Many educated offspring of the farmers have left the villages to the cities and other countries in search of employment. Instead of selling their lands, they look upon these lands as good real estate investment. Many landowners pursue other profitable businesses like contractual work, financing in the nearby towns and lease out their land. Some of the affluent younger generation who have migrated abroad or working in software industry and such other are actually buying more agricultural land as investment. As a result the prices of agricultural land have shot up far beyond what they would have been if only productivity was considered. This situation also makes it very difficult for the landless and marginal farmers who may want to buy the land by taking credit and through what little they have accumulated. The percentage of landless in south coastal Andhra is also very high, and all these factors along with higher productivity make the rates of tenancy very high in this region

11 Tenants, more or less, are largely excluded from institutional credit, not withstanding some recent steps taken by the government in the form of establishing joint liability groups and enactment of ''Andhra Pradesh licensed cultivators act 2011'' which provide for issuance of loan eligibility cards to tenants. During out of the 26 lakhs of tenants (estimated by the government) 5,76,147 lakhs tenants were given identity cards that means only 22% of the tenants farmers could get loan eligibility cards. In the number of tenants who secured identity cards fell to 4.1 lakhs that means the percentage of loan eligibility card holders fell to 15.7%. Even for these tenant farmers who had identity cards, banks did not provide loan to all the applicants. The figures show only 15% the loan eligibility card holders were able to secure bank loans. While tenants are forced to borrow farm credit at exorbitant interest rates, the owners who do not cultivate are actually availing these crop loans. Since banks do not care if the land is tenant cultivated or not, the non cultivating owners avail the crop loans and gold loans given at lower interest rates and invest this amount in more lucrative operations like real estate, sand quarrying etc. A good amount of this credit is also given to the tenant by the owners at very high interest rates prevailing in the informal markets. So, the land owners not only receive rent out of the land but also interest rate margin from the loans taken from the banks. Some owners may not directly lend to their tenants, but lend them to local financiers, fertilizer and pesticide dealers and other suppliers for interest rates of anywhere between 18 percent to 36 percent per annum. The financiers and others in their turn lend it to, among others, tenants and agricultural labourers at even higher rates. Rich land owners whether cultivating or non cultivating are in such an advantageous position that in some situations it makes more sense for them to lease out their land and lend out the bank credit they obtain. Take the case of crop loans and gold loans given at a rate of interest of 4 percent (after interest subsidy). Though these are crops loans, there are many times when bank has given gold loans without looking at any limit on credit per acre. Most of the time they only ask for the land tax receipt and not the landholders pass book. This way the landowner can get crop loans on the same piece of land from different banks at the same time. Most often than not, he does not have to resort to this as the same bank would lend him as much as he asks without a question if he provides required gold as security. But on the whole both landowners and banks find this advantageous as landowners get cheap credit and banks can meet their quotas without much problem. Banks are unconcerned about the end use. When gold prices were going up one heard of people taking 3% gold loans on the basis of their owned land and buying more gold with it. Even better, when loan waiver scheme was implemented, these loans which were not used to sow single seed were waived, while tenant farmers got nothing to relieve them of their debt obligations to money lenders. Of course, small and marginal farmers who own some land can also theoretically exploit the system of agricultural credit in the same way. In their situation, they have very few assets including gold which limits their ability to take credit beyond their need. So there is a situation where, increasing supply of credit to agriculture is coupled with complete lack of credit to tenant farmers. Though joint liability groups may be help the tenant in securing some credit, they can only be a very poor replacement for a proper system of providing crop loans to these farmers, as they will not be provided with scale of finance. It is doubtful how far the system of loan eligibility cards and licensed cultivator would go. It is clear that only when the landowner gives up the claim on agricultural credit can the licensed cultivator avail the loans, supposing the banks are eager to give loans to tenants. In 2011 out of the LEC holders only 20 percent got loans. One of the important reasons why the rest could not get loans was that the owners already availed crop loans on land which they did not cultivate.

12 Only way is, LECs should be given loans irrespective of whether the loan was availed by the owner or not. But, one doubts whether banks would agree to this. Even if they agree, cramming loans to owners and tenants with in the 13.5 percent direct agriculture credit is a questionable exercise. Apart from the problems discussed above, increase in credit will not benefit the small farmers and marginal farmers much if the credit provision is not made more comprehensive and suited to their needs. Provision of credit needs to take in to account the challenges farmers face in terms of crop failure, draught, floods, sudden fall in prices. Rich farmers and most medium farmers are able to withstand these eventualities in a better way than the small and marginal formers as they may have their own avenues of finance and alternate incomes. But for small and medium farmers, it is essential that during the above said eventualities they do not accumulate heavy debt to informal sources. This is bound to happen if banks do not reschedule the overdue loans during lean periods consistently and provide fresh crop loans. When banks fail to do this it would throw out the farmer from the safety of bank credit, presuming he was getting bank credit in the first place, and push in to the hands of exploitative sources and then begins the vicious cycle of crippling debt that contributed to the suicides of many a farmer in the past. On a positive note, it cannot be denied that there has been some serious effort in improving the flow of credit to agriculture in AP, in the recent years. It cannot be denied that the one of the most important aspect of agricultural credit is increasing the quantity, and there seem to be a reasonable successful effort on this front. Even the cost of agricultural loans has come down since the introduction of interest subvention scheme since , with loans costing 3 to 7 percent per annum. All banking indicators show impressive performance in agriculture front. There is also recognition that inclusion of various categories in to agricultural credit has diluted the credit received by the farmers. From July 2012 RBI excluded credit given to corporate, firms and institutions from direct credit to agriculture and included in indirect credit. Credit to arthiyas, agro and agro processing businesses, credit to dealers of agricultural equipment and credit to hire purchase schemes for buying agricultural equipment were altogether removed from the definition of agricultural credit. This would mean a partial reversal of credit flow back to farmers. References: Ramachandran V K, Rawal, Vikas and Swaminathan, Mathura (2010): Socio Economic Surveys of Three Villages in Andhra Pradesh A Study of Agrarian Relations, Tulika Books. Ramakumar, R., and Chavan, Pallavi (2011): "Changes in the Number of Rural Bank Branches in India, 1991 to 2008," Review of Agrarian Studies, vol. 1, no. 1, available at Report of Commission on farmers Welfare, Government of Andhra Pradesh Report of Committee for consultations on the situation in Andhra Pradesh RBI Master Circular on Priority Sector, July 2012.