MSc

The formal financial system plays an important role in financing the needs of the agricultural sector in India. In order to facilitate timely and adequate credit flow to agriculture, the sector has been targeted as a part of the priority sector for the lending programmes in 1969 with an emphasis on ‘social banking’. Domestic commercial banks have been directed to allocate 18 per cent of net bank credit to agriculture and allied activities. The directed credit programme has clearly resulted in a significant increase in the amount of credit allocated to agriculture over the years. According to the Reserve Bank of India, an amount of Rs.4,76,550 crores was pumped into the agricultural sector as institutional credit as on 31-03-2012 against a target of Rs.4,75,550. However, the increased amount of agricultural credit and its outreach over the years are accompanied by several qualitative issues like timeliness, adequacy, cost and access. Inclusive financing, ie., the delivery of financial services at affordable costs to sections of disadvantaged and low income segments of the society on par with access to any public good needs more scrutiny as banks look into the total quantity of credit disbursed in a financial year only. The growing spectra of financial exclusion in agriculture, providing livelihood to more than two third of our population, particularly of small and marginal holders, and tenant farmers merit more attention in this context. The inability to offer collaterals stands between them and the institutions despite many state initiatives.
The present study entitled “Access to institutional credit: An economic analysis of tenant farming in East Godavari District of Andhra Pradesh” was carried against this background with the specific objective of investigating the operational problems faced by both the tenants and bankers in credit delivery, and to suggest policy fine tuning to overcome the bottlenecks. According to the Andhra Pradesh (Andhra area) tenancy act, 1956, tenancy is permitted in the state, but it is regulated. Informal tenancy system was very prevalent in the district of East Godavari and it covered nearly 50 to 60 per cent of the cultivated area.



The total operating expenses on rabi paddy was found to be higher (Rs.49510/ha) on leased land as compared to the owned land (Rs. 40926/ha). This difference was accounted due to higher level of input use on leased land, besides the cost incurred towards paying rent (Rs. 7776/ha) to the land owner. Also, the scale of finance (Rs. 41990/ha) was found to be inadequate in meeting the working expenses of a tenant farmer, while it was sufficient in case of owner cultivated lands. Even though the gross income realized from the leased land was higher than that of owned land, the gross margin of the tenant cultivator was found to be relatively low. This was due to the additional costs incurred by the tenant farmer towards the land rent.
The subsidies provided by the Government could not be availed in full by the tenant cultivators. Hence, the tenant farmers usually borrowed farm inputs from the input dealers and village traders who exploited them by charging high prices for the inputs advanced. Due to their indebtedness towards the moneylenders and village traders, the farmers resorted to distress sales at low prices at the village market itself. The Government interventions in marketing of the produce were found to be inefficient.
Non availability of institutional credit and the high interest rate charged by the money lenders were the two major constraints experienced by the tenant farmers. The moneylenders exploited the tenant farmers by charging usurious rates of interest which varied from 24 per cent to 32 per cent. The scheme of financing tenant farmers through Joint Liability Groups (JLGs), introduced by National Bank for Agriculture and Rural Development (NABARD) was not successfully implemented in the study area. The logit regression analysis illustrated that the scheme of LEC introduced by the Andhra Pradesh Loan and Allied Benefits Eligibility Card (for permissive cultivation) Act was successful in providing formal credit to the tenant farmers. The possession of Loan Eligibility Card by the tenant farmers was found to be the most significant determinant in accessing credit from institutional sources. These cards enabled the tenant cultivators to access credit from public financial institutions and to claim input subsidy, crop insurance and compensation for damages to crop. Co-operatives were the agencies to implement the LEC scheme in a better way and advanced credit to the tenant farmers without any demand of collateral security



due to more government support and political will. The other formal institutions like commercial banks and Regional Rural Banks (RRBs) were reluctant to implement the scheme due to the complicated documentation procedures involved in credit delivery to tenant farmers.
Based on the findings of the study, policy measures like government intervention to strengthen the marketing system, credit linked marketing facilities, fixing realistic scale of finance with due considerations for the fair rent component, group initiatives in production and marketing, the universalisation of loan eligibility card, and simplification of bank procedures are being suggested.