There is a direct and positive correlation between the level of credit and farm output.

Agriculture, sidelined until very recently for its perceived limited impact on economic growth, is becoming fashionable within the government; though not outside it. As part of its pro-farmer policy, the Government has been actively stepping up the flow of credit. There is a direct and positive correlation between level of credit and farm output, although several other conditions have to be met too. Mercifully, farm credit has shown a robust increase the last two years, crossing the annual target, and is expected to more than double in three years, as envisaged. Fifty lakh new farmers are likely to be added to the portfolio.

To counter the criticism that the interest for non-essential credit is cheaper than on, say, loans for purchasing farm inputs — car loans come cheaper than crop loans — the Government has decided that every farmer borrowing from a commercial bank, a regional rural bank or a cooperative bank would pay 7 per cent with a principal upper limit of Rs 3 lakh. Financial support for this would come from the Government and the scheme would take effect from kharif 2006-07 (the south-west monsoon usually breaks on June 1). The Finance Minister has asserted that the modalities would be worked out soon at a meeting of bank chairmen.

To what extent banks would whole-heartedly share the compassion of the Finance Minister ("Ours is a compassionate government:" Mr P. Chidambaram in his latest Budget speech) is unclear. But some radical steps are called for. The Finance Minister should ensure that the banks stretch themselves to meet the emerging situation. Clearly, such initiatives as Kisan Credit Cards, cooperative credit and micro-finance through self-help groups, together with agricultural insurance are beginning to positively impact the rural population. However, in addition to lending, banks can play an even greater role. They can, and should, work towards capacity-building among the borrowers. This can be done in different ways, including delivery of crop advisory services or price and market information as also by building infrastructure. Banks must now begin to build expertise in this area.

While the Finance Ministry is doing its bit to deepen and widen the flow of credit, other arms of the Government too should play an active role in tandem. The Agriculture Ministry must pro-actively ensure availability of inputs (seeds, fertilisers, agro-chemicals). The decision on the minimum support price (MSP) should be announced well in advance, preferably by late April or early May. The MSP should be largely market driven and not artificially inflated. The forecast of the south-west monsoon is becoming increasingly critical for the market. Continuous monitoring of weather conditions and timely and regular dissemination of weather-related information through all media would be useful.

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