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Govt Raises Agri Credit Target to ₹28 Lakh Cr, But Efficiency Concerns Remain
Equities, Markets - January 29, 2025

Govt Raises Agri Credit Target to ₹28 Lakh Cr, But Efficiency Concerns Remain

Govt Raises Agri Credit Target to ₹28 Lakh Cr, But Efficiency Concerns Remain

Overview
The government raises the agriculture credit goal for banks each year, usually when the Union Budget is unveiled. The government set the agriculture credit target for FY 25 at 27.5 lakh crores, which was 11% higher than the previous year, in the Union Budget 2024 as well. About 75% of the total loan allocated for farmers is given by commercial banks, with cooperative and regional rural banks providing the remaining portion. The government is expected to raise the banks’ agriculture lending objective in the next Union Budget as well, raising the total aim above Rs 28 lakhs.

Agri Credit Target set in 2024-25
Due to a greater formalization of the rural credit system, commercial banks’ and regional rural banks’ lending to the agriculture sector is expected to surpass Rs 28 lakh crore in the current fiscal year, setting a new record, Shaji KV, chairman of Nabard, stated on Sunday. The flow of agricultural finance has grown by 13% annually on average during the past ten years. In the current fiscal year, we will surpass Rs 28 lakh crore in loan flow, Shaji informed FE.

A record Rs 27.5 lakh crore was set as the agri-credit disbursement target for 2024–2025, 31% more than the FY24 objective of Rs 21 lakh crore. In 2023–24, banks disbursed Rs 25.49 lakh billion in term and crop loans, a 15% increase over FY23. This year’s growth is predicted to reach about 10%.

Government Initiatives gear up for Agri Credit
The informal sector’s percentage of credit disbursements is decreasing as agri-credit flows increase. On the sidelines of Grameen Bharat Mahotsav, which Nabard is organizing in partnership with the Department of Financial Services, he stated that this signifies the formalization of rural credit, which will guarantee many margins with the rural populace.

The finance ministry has set aside Rs 11.5 lakh crore for term loans and Rs 16 lakh crore for short-term crop loans, which will be paid out in 2024–2025. Seventy-five percent of the total credit, or Rs 20.62 lakh crore, will come from commercial banks. Rs 4.2 lakh billion of the entire agri-credit flow has been set aside for short-term loans to the dairy, fishery, and poultry industries.

The agriculture ministry’s Agri Stack effort, which would generate a farmer registry, village land maps, and crop sown data, would be used by the National Bank for Agriculture and Rural Development (Nabard) to digitize farmers’ credit records in order to rectify this imbalance in loan flow, Shaji stated.

At Rs 4.39 lakh crore, or 17.6% of the total credit disbursal in the country, Tamil Nadu received the largest credit disbursal in the previous fiscal year. Andhra Pradesh came in second with Rs 2.96 lakh crore, or 12% of the total. According to Shaji, Nabard wants to introduce the second phase of the Rs 1,000-crore Nabventures fund, which is intended for entrepreneurs in the agricultural and related industries. A Rs 750-crore agri fund for start-ups and rural businesses was introduced last year by Nabard in partnership with the agricultural ministry.

To satisfy their working capital needs, farmers with Kisan Credit Cards can receive loans up to Rs 3 lakh at 7% annual interest under the modified interest subvention scheme. The program lowers the effective interest rate to 4% by offering an extra 3% interest subvention for timely repayment.

Trend in Bank Credit to Agriculture
Banks are already heavily involved in agriculture and related fields. From an outstanding balance of Rs 13.3 lakh crores in FY21 to Rs 22.2 lakh crores in FY24, bank credit to agriculture has soared in recent years. That amounts to around 13% of the entire bank credit. According to the most recent data, bank lending to agriculture increased 15.3% year over year through November of last year, compared to 18.1% during the prior similar period. Nonetheless, the growth is significantly higher than the average loan growth, even at 15.3%. There are currently 22.2 lakh crores in outstanding agri-loans.

Because it is required by law, banks are increasing their financial flows to the farm sector. Banks are required to lend 18 percent of their adjusted net bank credit to agriculture under the priority sector lending (PSL) standards. This includes lending for agricultural infrastructure and auxiliary operations as well as farm finance, which covers agriculture and related industries.

Agriculture Sector’s efficiency unlikely to improve
According to the report, unpredictable weather patterns and an unequal monsoon spatial distribution in 2023 caused Gross Value Added (GVA) in the agriculture sector to grow more slowly even with this rise in credit. To put it another way, greater funding isn’t always translating into greater efficiency. The monsoons are one of several factors that affect the sector’s success. The issue cannot be resolved by money alone.

Banks, primarily state-run lenders, will have a lot to worry about in the coming days about their farm loan books if these loans go bad. Investors may therefore find it beneficial to closely monitor the agribook performance of banks, particularly state-run banks.

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Govt Raises Agri Credit Target to ₹28 Lakh Cr, But Efficiency Concerns Remain
Business, Equities, Markets - January 23, 2025

Agricultural sector in India anticipates enhancement of rural income in the upcoming Budget

Agricultural sector in India anticipates enhancement of rural income in the upcoming Budget

Overview
Every financial year, the Union budget gives a chance to make improvements in the rural areas of India. Its main purpose is to maintain agricultural productivity, increase the base of various income channels and also expand the overall productivity of rural regions in India.

According to the observations of the FMCG sector, the demand in rural areas is showing positive signs. It is partially because of factors such as sufficient reservoir levels, strong government aids, and also positive monsoon season.

Taking this matter into consideration, the Union Budget 2025 can certainly aim for strengthening of demand and income levels of hinterland areas in India.

Subsidies related to Fertilizers
Fertilizer is one of the important elements in agricultural production. The overuse of chemical fertilizers such as Urea can severely harm the agricultural land as well as its production. The government of India aims at implementation of balanced fertilization of land to enhance productivity in agriculture. To achieve this goal, it has implemented a subsidy known as Nutrient-based Subsidy. This scheme gives incentives to fertilizers which do not use urea as a component. It helps farmers to buy fertilizers at affordable prices. However, recently the amount of funds given for subsidy under this scheme has declined due to the hike in cost incurred on making these fertilizers.

Despite this concerning situation, the government aims to have balanced use of various nutrients in the agricultural land and not completely depend on Urea as fertilizer. It indicates that the government of India will have increased allocation of funds for nutrient-based subsidy in the upcoming budget. Apart from this, the government of India will take more schemes such as Soil Health Card for farmers. It gives info of soil health of farmer’s land and which nutrients are required for the land. It helps to balance use of various nutrients and not completely depend on Urea as fertilizer.

Investors can observe performance of companies such as Paradeep Phosphates and Coromandel International.

The government of India is expected to enhance use of advanced types of fertilizers such as organic and nano fertilizers. The reason for this is to contract the use of chemical fertilizers, enhancement of production, reducing import levels of fertilizers as well as improvement in budget allocated for subsidies.

National Mission on Natural Farming
Under this programme, the government of India decided to encourage about 1 crore farmers into natural farming in a period of two years. It will help in enhancing the health of agricultural land, reduce use of fertilisers and improve agricultural production. It implements this scheme by giving certification and branding to farmers who integrate natural farming.

Increase in production of coarse grains and oil seeds
In the previous years, the government of India focused on making India self-sufficient in terms of production of oilseeds like sesame, sunflower, soybean, mustard, and groundnut. The government has taken initiatives such as providing welfare schemes and minimum support price for encouraging expansion of production of oilseeds and non-wheat products. It is expected that in this year as well, the government will take actions towards expansion of production of these crops.

Other channels of income
The latest NABARD’s report shows that a compounded annual growth rate (CAGR) of about 9.5 percent is recorded as the average monthly income of rural households for the duration of financial year 2017 and financial year 2022. In aggregate terms, the growth in income levels of rural households is around 57 percent. Though it seems good, it is quite below the target set by the government of India of making farmers’ income twice in the same period of time.

In this situation, to improve income levels of rural households, the government needs to focus on other channels of income.

In the past few years, several actions have been taken by the government of India such as white revolution, honeybee-keeping, and blue revolution to improve income levels of farmers. The budget allocated for fisheries increased by a CAGR of 24 percent and allocations of funds for dairy increased by a CAGR of about 20 percent. The initiatives were taken to aid shrimp farming in India by creation of Nucleus Breeding Centres in the previous year.

If the government again takes steps towards enhancement of these segments, then it will possibly have influence on companies such as Apex frozen foods, Avanti and many more.

Enhancement of supply chain of agriculture
The supply chain of agriculture includes logistics, crop insurance, cold storage chains, and agricultural producer markets. The improvement in these components of the supply chain will certainly lead to development of the agricultural sector and rural areas of India. Also, the strong agricultural supply chain aids in mitigating the rise in food inflation recorded in the past few years.

In conclusion, there is a possibility that the government of India will again focus on its previous year plan of bringing resilience and productivity in agricultural sector in India.

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