AGRICULTURAL FINANCE: NATURE AND SCOPE
Introduction
Farm finance has become an important input due to the advent of capital intensive
agricu1tural technologies. Farmers require capital in order to enhance the productivities of
various farm resources. Indian agriculture, in general, is characterized by low and uncertain
returns. In order to break the vicious cycle of low returns → low savings → low investment →
low returns, provision of external finance to farmers becomes inevitable.
Organized and unorganized credit agencies in rural area provide credit for both
development and consumption purposes. Provision of credit by these agencies involved many
obstacles to both bankers and borrowers due to differences in banking system followed by
bankers, socio-economic conditions of borrowers and infra - structural facilities and institutional
support offered to the borrowers. Besides, the government also frequently changes its
agricultural credit policies regarding institutional credit set-up, credit rationing, rates of interest,
subsidy and the functioning of markets and other developmental agencies which would
influence the extent of credit available to farmer-borrower. All these factors, therefore, ultimately
have a bearing on farm returns. Hence, problems regarding capital could be well understoood,
if one could realise the theoretical basis of agricultural credit system in India, bottlenecks faced
by bankers and borrowers, and the governments' efforts in solving the problems involved in the
agricultural credit system in India.
Importance of Agricultural Finance
Credit is essential for agricultural development and also for the development of the
economy as a whole. The agricultural finance is required for the following reasons:
i) The scope for extensive agriculture in India is limited. Therefore, increase in agricultural
production is possible only by intensification and diversification of farming. Intensive agriculture
needs huge capita1.
ii) Extreme inequalities exist in the distribution of operational holdings and operational area.
74.5 per cent of the total number of farm households which own less than 2 hectares operate
only 26.2 per cent of the total operated area whereas only 2.4 per cent of total number of farm
households which own more than 10 hectares each operate 23 percent of the total operated
Introduction
Farm finance has become an important input due to the advent of capital intensive
agricu1tural technologies. Farmers require capital in order to enhance the productivities of
various farm resources. Indian agriculture, in general, is characterized by low and uncertain
returns. In order to break the vicious cycle of low returns → low savings → low investment →
low returns, provision of external finance to farmers becomes inevitable.
Organized and unorganized credit agencies in rural area provide credit for both
development and consumption purposes. Provision of credit by these agencies involved many
obstacles to both bankers and borrowers due to differences in banking system followed by
bankers, socio-economic conditions of borrowers and infra - structural facilities and institutional
support offered to the borrowers. Besides, the government also frequently changes its
agricultural credit policies regarding institutional credit set-up, credit rationing, rates of interest,
subsidy and the functioning of markets and other developmental agencies which would
influence the extent of credit available to farmer-borrower. All these factors, therefore, ultimately
have a bearing on farm returns. Hence, problems regarding capital could be well understoood,
if one could realise the theoretical basis of agricultural credit system in India, bottlenecks faced
by bankers and borrowers, and the governments' efforts in solving the problems involved in the
agricultural credit system in India.
Importance of Agricultural Finance
Credit is essential for agricultural development and also for the development of the
economy as a whole. The agricultural finance is required for the following reasons:
i) The scope for extensive agriculture in India is limited. Therefore, increase in agricultural
production is possible only by intensification and diversification of farming. Intensive agriculture
needs huge capita1.
ii) Extreme inequalities exist in the distribution of operational holdings and operational area.
74.5 per cent of the total number of farm households which own less than 2 hectares operate
only 26.2 per cent of the total operated area whereas only 2.4 per cent of total number of farm
households which own more than 10 hectares each operate 23 percent of the total operated
