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The next phase has been a phase of public policy support for rapid
bank credit expansion. Because of the serious social revulsion against financial
exclusion, there were renewed pressures on banks to expand bank and a
special policy of bank credit doubling within a period three years was adopted,
as explained earlier, in 2004-05. This policy of rapid bank credit expansion
has been reflected in phenomenal increases in the extent to which private
investment in agriculture has been financed by term credit from banks. In
the initial three years of this new policy period the credit to investment ratio
has jumped to 84.2% in 2004-05 and to 112.3% in 2005-06 and to 125.3%
in 2006-07. In the subsequent four years, the ratio has ranged from 71.5% in
2008-09 to 89.3% in 2010-11, the latest year for which the data are available.
The ratio may have slipped down in 2011-12 as there has occurred a 13% fall
in investment credit from banks in that year (Table 8.5).
On the face of it, it appears unrealistic that about 90 percent of private
capital formation in agriculture, in some years more than 100%, is financed
by the institutional credit agencies, but there is no way of generating more
dependable data in this regard. However, as we have repeatedly pointed
out, the inclusion of indirect lendings by commercial banks in the ground-
level disbursement data have distorted the data series. But, we have no way
of making systematic any adjustments to the official series on ground-level
disbursements. As brought out earlier, an overwhelming proportion of farm
sector term loans – over 80% has gone to allied activities – plantation and
horticulture, animal husbandry and fisheries as also high tech agriculture and
storage and marketing yards, etc.; this also includes RIDF deposits by banks
which are lent to state governments for rural infrastructure. Therefore, the
high credit to private investment ratio is a misnomer.
4. Demand-side Indicators at the States and Regional Levels
As a surrogate for demand-side indicators, we have the estimation of
gross state domestic product (GSDP) which have been turned around to relate
to state-wise and region-wise distribution of institutional credit in two ways:
first, state-wise and region-wise farm credit disbursements to agricultural
GSDP ratios; and second, a comparison of the relative shares of states and
regions in agricultural GSDP and bank credit so as to judge if the relative
disparities have narrowed over years.
At the other extreme, what stands out is the depressingly low level of
increases in three under banked regions – eastern, north-eastern and central
regions. For all these regions, the ratios have remained far below the national
average.
