The Agriculture Sector Has What It Takes to Drive Post-COVID-19 Economic Recovery

If the government can ensure that the benefits of credit facilities reach farmers in a time-bound fashion, the sector could finally leapfrog into a new regime of growth and enhanced farmer welfare.

The nationwide lockdown to contain the outbreak of the COVID-19 pandemic in India has brought economic activity to a complete standstill. During these times of crisis, when most sectors in the economy are in a slump, the agriculture sector has risen to become a beacon of hope and has the promise of leading the country’s economic recovery.

As the least affected sector from the coronavirus-induced recession, the agriculture sector can not only be leveraged in the process of recovery, but it could also gain from this opportunity by leapfrogging into a new regime of growth, development and enhanced farmer welfare.

It is widely acknowledged that access to credit is critical for accessing timely and good quality inputs at the time of sowing and can significantly alter the post-harvest management of crops during harvest. The International Food Policy Research Institute (IFPRI), based on a large field survey of nearly 3,000 agricultural households in 2018-19 in Bihar, Jharkhand, eastern Uttar Pradesh, Odisha and West Bengal, analysed the impact of access to formal and informal credit on the well-being of farmers.

Our research shows that access to credit has had a substantial positive impact on farmers’ household incomes and raised yields of major staple crops significantly.

The second tranche of the economic stimulus package announced by the central government had important decisions regarding credit support for small farmers. It promised to provide additional credit support to small farmers through the National Bank for Agriculture and Rural Development (NABARD), and the Kisan Credit Card (KCC) facility.

Also read: COVID Lockdown: How India’s Food Supply Chain First Tightened and then Recovered

According to the government’s statements, NABARD will extend an additional refinance support of Rs 30,000 crore for crop loan requirement of regional rural banks (RRBs) and rural cooperative banks (RCBs), which are the main sources of credit for small and marginal farmers, over and above the Rs 90,000 crore to be provided by NABARD through the normal refinance route during the 2020–2021 financial year.

The credit and refinance support is targeted to provide for the emergency working capital funding for farmers and help them meet post-harvest requirements of the 2019 rabi crops and take care of the costs of the current kharif 2020 sowing season. Over three crore farmers are expected to benefit from these initiatives.

Nearly 25 lakh new KCCs have been sanctioned with a loan limit of Rs 25,000 enabling farmers to gain access to institutional credit at a concessional rate of interest. A special drive is underway to provide concessional credit at low interest through credit cards to beneficiaries of the Pradhan Mantri Kisan Sammaan Nidhi (PM-KISAN) scheme, including fishermen and animal husbandry farmers. Almost 2.5 crore farmers will be covered and are likely to benefit from a credit flow of nearly Rs 2 lakh crore.

Interest subvention and prompt repayment incentive on crop loans due from March 1 have been extended to May 31. The government has approved almost 63 lakh loans worth Rs 86,600 crore in the agriculture sector, while refinancing of Rs 29,500 crore has been provided by NABARD to RRBs and RCBs in March and April. About three crore farmers with agricultural loans of Rs 4.22 lakh crore have availed the benefit of a loan moratorium of three months. In addition to this, a working capital limit of Rs 6,700 crore has been sanctioned for the procurement of agriculture produce of state government entities since March 2020.

The credit stimulus package for agriculture is timely. Among the most important constraints that Indian farmers face on the input side is the lack of access to adequate credit facilities. The provision of concessional credit through KCCs and the interest rate subvention on farm loans can come in handy for farmers preparing to sow in the kharif season of 2020.

A vendor in Sahibabad. Photo: PTI

After an initial shock for the first few days, agricultural supply chains have proved to be resilient to the national lockdown as farm operations were unaffected and large wholesale markets such as Azadpur in Delhi and Vashi in Navi Mumbai continued to function until COVID-19 cases were detected there. Prices of most food commodities have not spiked as was popularly speculated and have remained much below the levels they reach in normal times of shortages.

The credit support extended by the government will be crucial for the kharif sowing season in 2020, as shortages of labour and working capital due to the COVID-19 crisis is likely to increase costs. In these times, interest rate subvention and extension of credit through KCCs can come as a relief to farmers preparing to sow in the current season. In order to keep agricultural supply chains from being disrupted, a successful kharif sowing season will be crucial.

Additionally, India being the largest exporter of rice in the world, will play a crucial role in fulfilling not only its own domestic demand but also providing for the food security of other countries that depend on rice imports, as other major exporters have withdrawn from the world markets in an attempt to prevent the spread of the coronavirus pandemic. This necessitates the provision of credit for farmers to purchase required inputs and undertake timely sowing of paddy.

The study conducted by IFPRI found that only about 19% of agricultural households had KCCs on an average in Bihar, Jharkhand, eastern UP, Odisha, and West Bengal. This is fairly low. If the present package can deliver on its promise of providing all PM-KISAN beneficiaries, including those engaged in animal husbandry and fisheries, with KCCs for borrowing at concessional rates of interest, it will increase coverage significantly and be a step towards freeing small and marginal farmers from the clutches of usurious local moneylenders.

Also read: Some Key Questions That Need to Be Answered About the Three Agriculture Ordinances

Agricultural supply chains are likely to remain uninterrupted and the threat of food supply disruptions causing food price inflation will be minimal if the government can deliver on its promises and the benefits of credit facilities reach farmers in a time-bound fashion.

The gains from familiarising farmers with institutional sources of credit and enhanced ease of accessing during the current crisis will have long-term gains for the benefit of agriculture and the welfare of farmers.

Smriti Verma is a research analyst at International Food Policy Research Institute, South Asia Office, New Delhi and Anjani Kumar is a senior research fellow at International Food Policy Research Institute, South Asia Office, New Delhi. Views expressed here are their own.