Rural credit delivery in India: structural constraints and some corrective measures

In view of the importance of rural credit to agriculture and rural development, this paper has examined a few structural constraints that hamper the credit delivery and has discussed some of the measures taken to improve the situation. The public policy on rural credit in India has been focussed on institutionalisation as a means of providing cheaper credit to farmers. As a result, the share of private moneylenders has decreased substantially from 93 per cent in early-1950s to 31 per cent by 1991. Disturbingly enough, they have emerged as an important source, more so for the resource-poor with a share of 39 per cent by 2002. The multiagency system onset for giving a wide choice to farmers has turned out to be ineffective due to deficiencies of design and architecture. Also, ailing cooperatives, backtracked RRBs and commercial banks with waning interest in rural credit have contributed to the ineffectiveness of the multiagency system, hampering the credit delivery. Several measures have been taken to revitalise the system from time to time. Cooperatives are being given a package assistance for revival following the Vaidyanathan Committee Report. RRBs have been amalgamated and are being given capital to cleanse up their balance sheets. Commercial banks have been successfully involved in ‘Farm Credit Package’ for doubling the credit and other initiatives of Government of India. The SHG-bank linkage has been promoted on a large scale to supplement rural credit delivery. But, its high transaction costs make it a costly alternative, especially when the business is handled solely by NGOs/MFIs. A thorough overhauling of the rural credit system and its restructuring is the need of the hour. However, it cannot be effective if done alone in isolation without revitalising the Indian agriculture itself.