September , 2022
Credit facilities and indebtedness of Indian farmers
21:28 pm

Kishore Kumar Biswas

In India credit is inevitable for the small and marginal farmers. This is because the farm sector income is low and their saving capacity - making them vulnerable to several risks. The formal banking sector loans are cheaper and more suitable for farmers but there have been problems regarding accessibility. Loans against gold or jewellery as collateral is possible only for the well-off farmers.

Two important observations on credit and indebtedness of National Bank for Agriculture and Rural Development (NABARD) Farm Loan Waivers in India - Assessing Impact and Looking Ahead, 2021) are presented below -

One, indebtedness is inevitable for Indian farmers. A recent NABARD study observes this. It points out that by writing off a farmer’s past dues and providing him/her with an access to fresh credit, governments try to reduce farmers’ distress. But the problem is with the cyclicality of debts. A farmer in India is plagued with multiple distortions that make the business of farming volatile and inevitable. The production cycle, coupled with other factors, makes it impossible for farmers not to be indebted and the income instability makes it difficult to come out from a cycle of debt.

Two, indebtedness is more a symptom of farm distress than its immediate cause. The NABARD study also observes that inability to earn enough income makes a farmer indebted and recurrent losses and falling margins makes him default on his loans. This default deepens his distress, sometimes driving him/her to take the extreme step of committing suicide. This may be referred to as his vicious cycle of poverty. A farm loan waiver addresses this indebtedness, which appears to be a result or a symptom of a more complex problem. Therefore, with unaddressed factors of distress like successive corn failures, inability to get remunerative prices for their crops or a personal loss), the condition of a farmer’s loan waiver is only partly successful as it improves their condition for a short period of time. Therefore, in such a scenario, a farm loan waiver only proves to be a ‘jury-rigged expedient’- that is a quick fix that needs to be applied at regular intervals.

Agricultural loans in India

There are two sources of credit, one, informal and two formal sources. The informal credit sources are losing strength over time. But in the meantime credit from informal sources, like rural money lenders has increased.   

Agricultural loans are available for different kinds of farming related activities. There are various types of loans available like loans for running day to day operations, buying farm machinery, purchasing land, storage purposes, product marketing and expansion of activities. These loans are available from organised financial institutions. And in many cases financial aids are offered in the form of grants and subsidies in the cases of crop damage or crop losses due to natural causes or accidents. The benefit is also available in case of horticulture, animal husbandry, silk farming, apiculture and floriculture. The most important institution for agriculture and rural development credit has been the NABARD. It was established in the early 1980s.

Commercial banking and agriculture credit

The credit from Scheduled Commercial Banks (SCB) has been increasing quickly. Out of this Public Sector Banks’ (PSB) contribution is disproportionally higher. In 1951-52, SCB was not interested in opening rural branches and at that time loans to agriculture were only 0.9% of the total credit to the sector. But after nationalisation of banks, it increased to 29% in 1981 and 75.7% in 2018-19. In 2018-19, it stood at about `9.5 lakh crore. This was `1.54 lakh crore of cooperative institutions’ credit to agriculture in 2018-19 FY. The contributions of cooperative banks and regional rural banks have been declining and the role of PSBs increased substantially. In 1990-91, the total credit disbursement of cooperative banks, regional rural banks and SCBs had been `9,830 crore and shares were 49%, 3.4% and 47.6% respectively. The share percentage changed dramatically in 2018-19 and those stood at 12.3%, 12% and 75.7% respectively out of the total credit disbursement of about `12.55 lakh crore. One point should be mentioned here. The contribution of non-institutional loans (local money lenders, businessmen, relatives, land lords, etc.) had been 92% in 1951-52 but it fell down to 39.4% in 2081-82. But after that, the contribution of credit to this source did not change much. In 2021, contribution of non-institutional credit remained at 36%. This is a matter of concern.

Kisan Credit Card (KCC)

It was introduced in 1998-97. Holders of KCC can take short term credit. It is directed by NABARD. In case of death of the card holder, family members can get `50,000 and `25,000 for permanent injury. A holder of KCC must pay only `15 for a one year policy.


The central government's efforts to help the farmers by providing funds to meet the agriculture and other household needs through direct benefit transfer has gained importance and popularity in recent years. Several studies observe that if the cash benefits are timely reached it has really helped the farmers through technology adoption and realization of higher returns for the farmers.


The Government of India has been introducing many schemes for the development of the precarious condition of small and marginal farmers. At the same time, the lion’s share of the benefits has gone to the middle and large farmers. One may comprehend the living condition of small and marginal as well as other farmers in this way. A recent NABARD study points our correctly, “Rather than relieving all the borrowers, irrespective of distress levels, from their responsibility to repay the loans, the governments should instead nurture a healthy credit culture and invest in farmers and their farming so as to empower them via a robust ecosystem that helps him grown in a sustainable and a profitable manner.”      


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