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Agri sector got a raw deal once again by not getting due share of credit, in fact credit to agri sector declined.
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Deployment of Gross Bank Credit by Major Sectors (Amount in Rs. Crore)
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| |
Outstanding |
Variance |
Financial |
Year |
So far |
| |
24 Sep 2010 |
25 Sep |
2009 |
24 Sep |
2010 |
| |
|
Absolute |
Percent |
Absolute |
Percent |
| Non-food Bank Credit |
31,99,151 |
92,341 |
3.5 |
1,62,206 |
5.3 |
| Agriculture |
4,01,933 |
-1,760 |
-0.5 |
-13,481 |
-3.2 |
| Industry |
14,17,200 |
84,981 |
8.1 |
1,07,386 |
8.2 |
| Personal loans |
6,15,195 |
3,836 |
0.7 |
29,170 |
5.0 |
| Services |
7,64,823 |
5,281 |
0.8 |
39,130 |
5.4 |
| Priority Sector |
11,20,343 |
8,320 |
0.9 |
11,150 |
1.0 |
Source: RBI, Q2 Review 011110 |
“… the global experience of growth and poverty reduction shows that GDP growth originating in agriculture is at least twice as effective in reducing poverty as GDP growth originating outside agriculture.” Agri Sector- XI Plan Mid term Appraisal |
Investments including bank credit help in increase in Agri GDP growth.
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Direct agriculture credit has significant positive impact on agriculture output. In particular, change in per capita agriculture direct credit (amount outstanding) by one per cent will lead to increase in per capita agriculture output by 0.11 per cent. Source: Abhiman Das et al, Reserve Bank of India Occasional Papers Vol. 30, No.2, Monsoon 2009
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But, during the half year April- Sep 10, agri credit steeply declined by Rs 13,500 crore (-3.2%).
Tardy growth in Agri output- Growth of food grain output during 1991-2005 at 1.1% was less than population growth of 1.6%.
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Had the same growth rate of over all Bank credit at 5.3% was maintained for agri loans also, an incremental amount of over Rs 30,000 crore could have been disbursed for much needed agri operations there by reducing dependence of farmers on money lenders who charge interest at 30% to 60%. The FM has, in his budget speech,mentioned increase in credit flow of additional Rs 50,000 crore during the current financial year. |
| Adding the figure of decline in agri credit during the first half year at Rs13,000 crore, a total amount of Rs 63,000 crore should be disbursed during the 2nd half year. I t is a difficult task and it is observed that banks have been engaging in phenomenal increase in agri credit during the off season months of Feb and March. How it is done and to whom it is given is known only to the Banks and no questions are asked as to how major amount of loans are given in the off season. |
There was, however, significant improvement in credit flow to industry to the extent of Rs 1.07 lakh crore (8.2%), services to the extent of Rs 39,000 crore (5.4%) and personal loans to the extent of Rs 29,000 crore (5%). RBI Q2 Review 011110
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RBI hikes Repo (6.25%) and reverse repo rates by 25 bps (5.25%); no change in CRR, retains GDP growth forecast at 8.5%, lowers inflation target to 5.5%. PTI 021110
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NREGS makes beneficiaries dependant on doles, is a way to perpetuate the power of Govt- Derek Scissors
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State-run social welfare programmes like the national rural employment scheme make the beneficiaries dependent on doles rather than be independent. |
"That's not the way to create wealth, that is a way to perpetuate the power of the government. It may have some political advantages, but they are myopic because you are not solving the problem of rural poverty. You are just alleviating it temporarily. It's a bandage solution". |
"These are poor substitutes. That's what you do; you make farmers into permanent dependents of the state. What you want is farmers to create wealth for themselves." Derek Scissors , fellow at the Asian Studies Centre at The Heritage Foundation, Washington. ET 011110 |
Raise and decline of Micro Finance Institutions
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| As of August this year, India had 3,000 MFIs lending Rs 20,000 crore to 28 million borrowers with a compounded annual growth rate of 105 per cent. The returns on equity in MFIs increased from 5.1 per cent in 2008 to 18.3 per cent in 2009. With assured interest rates varied from a minimum of 30 per cent to a maximum of 60 per cent with which profit is certain, private equity portfolios are eager to enter this sector. (Excerpts from the first part of an article in People's Democracy, dated October 31, called The Stranglehold of Microfinance by K Veeraiah) |
Villages shut doors on MFIs: The routine business operations of microfinance institutions were hit in Andhra Pradesh as their field staff were not allowed into some villages. “About 45-50 per cent of operations are said to be hit in the industry in general because of this problem. BL 291010
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Krsr/and150/081110
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