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Beyond Banking

How long-term credit helped farmers stay afloat during the pandemic

farmers harvesting crops, agriculture boom, long-term credit

The COVID-19 pandemic has adversely affected almost all aspects of the global and national economy. However, it has also demonstrated the resilience of the agricultural sector which has admirably weathered the storm. In fact, seeing how impervious to ‘economic’ shock agriculture is, investing in it can actually improve the overall economy of the nation, and even, the globe.

India is the largest exporter of rice in the world and is responsible for feeding multiple nations. Thus, our agricultural sector must suffer no setback as that will have global, national, and geopolitical ramifications. This is not to say that the Indian farmer did not face multiple challenges during this pandemic. However, multiple government schemes, logistical priority, and innate resilience were enough to stand up to the challenge. 

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Challenges Faced by the Agriculture Sector

1. Seed Procurement: The 120 million smallholdings farmers responsible for 40% of grain and half of the fruits and vegetables produce were affected by the lockdown, as seed procurement for their crop was hampered. The issue was resolved through prompt management by government agencies and it incidentally had the unintended effect of ensuring many farmers went digital to avail of services offered. 

2. Labour: Migrant labour is essential during harvest times and it was severely affected by the pandemic induced lockdown. Though it caused severe stress during the harvest, very little crop was wasted. 

3. Price Fluctuation: Considering the disruption caused by the pandemic, there was a minor fluctuation in crop prices. However, this was greatly curtailed by multiple online portals for farers which enabled them to competitively price their products and find buyers.

Relief to farmers /Credit reforms to farmers 

Indian farmers seek loans in both short and long term, but recent studies have shown that they opted for only short-term loans because they weren't confident about being able to repay the long term ones. Besides, while taking short term loans, the loan amount is not high (microfinance), but the interest rates are, especially when compared to long term loans. The current pandemic makes it difficult for farmers to repay even short term loans since the entire logistics structure of agricultural sector relies on was heavily curtailed. This resulted in the farmer not being able to earn on their crop, thereby having no capital to repay the loans. 

The relief package granted by the government serves to address these issues. NABARD is going to issue credit worth INR 90,000 crores to small and medium farmers and INR 30,000 crores specifically for crop loan requirements. This will be all the more beneficial as the INR 30,000 crore credit will be doled out by regional rural banks and cooperative banks, thereby ensuring ease of dissemination. 

The Kisan credit card facility has been authorised with 25 lakh new accounts with a loan limit of INR 25,000 to be made available to the farmers. In addition, the Pradhan Mantri Kisan Sammaan Nidhi (PM-KISAN) scheme is going to disperse a total of INR 2 lakh crore of credit and special low-interest rates to over 2.5 crore farmers including those into animal husbandry and fisheries. Considering that the majority of our farmers have small and medium-size farm holdings, these measures are also being actively supported by numerous cooperatives and private institutions.

Along with understanding the crucial role that agriculture still plays in the digital world, the current pandemic has highlighted how a robust agriculture sector and a sturdy logistics trail can act as a ‘hedge’ in a market beset with volatility. The Indian agriculture sector has been in the process of an overhaul, and the pandemic seems to have catalysed that effort, enabling farmers to procure loans easily and at affordable interest rates. It has also given a boost to sustainable agricultural practices while also ensuring healthy profitability. 

Digitisation and Capitalisation is the way forward for the agricultural sector

Farmers have now been forced to digitise and the further capitalisation of the agriculture sector will ensure not a regional, but a global market for Indian farmers to sell their products in. This will, in turn, invigorate the agriculture manufacturing sector.

More importantly, farmers are now open to long term loans with the government covering long term credit with low-interest rates,  payment flexibility and numerous other incentives to ensure the farmer feels secure. Long term credit is essential to overhaul the agriculture sector as it has the capital to dynamically change farming practices by the introduction of better seeds, more machinery as well as opening new markets for farmers.

The agriculture sector surprisingly proved resistant to market shocks as was elaborated by the recent COVID-19 pandemic. But, this is because of the indirect coupling agriculture has with economics in our country. 

Providing long term credit to farmers will be critical in transforming the agriculture sector which has the potential of becoming the largest in the world to incrementally realise that potential. Banks like IDFC FIRST Bank are already understand the massive potential for growth in our agricultural sector. Thus, enabled by the hard work of the farmer and the long term loans procured from banks, crop rotation, sustainable farming, increasing the yield of cereals, and planting cash crops are now a reality for the Indian farmer. The only time farmers will take long term loans is when they feel secure enough considering the market and their support factors to do so. This, happily enough, is precisely what is happening today due to the generous loan schemes as well as the support provided to farmers by banks such as IDFC FIRST Bank.  



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