Financing Agriculture: A Study of Bihar and West Bengal Potato Cultivation

Abstract

Institutional finance plays an important role in the adoption of modern technology and in increasing private capital investment in agriculture. Moreover, the elasticity of input use to agriculture credit was close to unity indicating the significant contribution of institutional credit in promoting modern production technology for increasing productivity and production. Institutional finance has even a greater role to play in a country like India where 80 per cent of the farmers are small and marginal who operate 40 per cent of land and are unable to generate enough farm surpluses and re-invest due to their low level of income. Moreover, introduction of modern technology in agriculture has led to intensive use of inputs and the package of practices, resulting in manifold increase in the requirement of production credit. Institutional finance for agriculture may be stated to have started long back (1793) when the system of taccavi loan was introduced. Subsequently, Government’s agricultural credit policy aimed at increasing the flow of institutional credit at reasonable interest rate to the agricultural sector. The policy measures adopted included strengthening of co-operatives, nationalisation of scheduled commercial banks (SCBs), fixing targets for lending to agriculture, launching new schemes like service area approach, lead bank scheme, creation of Regional Rural Banks (RRBs) and apex national level bank, National Bank for Agriculture and Rural Development (NABARD), etc. (Dandekar and Wadia, 1989; Gadgil, 1992). However, the institutional agricultural credit delivery system is faced with some problems which restrict its outreach to different states and sections of farming classes. The share of agricultural credit to total credit declined from 20.5 per cent to less than 10 per cent by March 2003 (Kumar, 2005). Moreover, NSSO Survey (2003) showed that, of the total cultivator households (89.35 million), the coverage by formal sector is only 27 per cent. In spite of the various measures to rejuvenate farm