Credit to employment-intensive sectors: Is the revival real?

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Credit to employment-intensive sectors Is the
revival real?

• R. Ramakumar
• Pallavi Chavan

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Rate of growth of credit from scheduled
commercial banks to major employment generating
sectors, 1975-2006, in per cent per annum
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So, in agriculture,

• The sharp increase in flow of credit after the
  late-1990s has not led to a revival in the growth
  rates of agricultural GDP.
• On the employment front, between 1999-00 and
  2004-05, the growth rate of agricultural wage
  employment declined.
• Are certain features of the credit revival
  holding back its growth and employment linkages?

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First, the growth rate in agricultural credit in
the 2000s originates primarily from a growth in
indirect finance to agriculture
Direct finance is credit given directly to
agriculturists. Indirect finance refers to credit
given to institutions and organisations that
contribute to agricultural production.
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New components of indirect finance

• Lending to NBFCs for on-lending to agriculture
  (agri-clinics and agri-business)
• Loans to Electricity Boards to reimburse
  expenditure incurred on providing power to
  agriculture
• Deposits held by banks in RIDF maintained with
  NABARD (deficits on priority sector)
• Finance to dealers in drip/sprinkler irrigation
  systems and agricultural machinery
• Subscriptions to bonds issued by NABARD for
  financing agriculture and allied activities.

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Secondly, a very large share of the incremental
credit supply has been obtained by big farmers

• In the RBI publications, cultivators are divided
  in the following way according to land
  size-classes
• Marginal cultivators lt 2.5 acres
• Small cultivators 2.5 to 5 acres
• Big cultivators gt 5 acres

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Thirdly, the revival has been driven by a
remarkable growth in loans above Rs 10 crore
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Who are the beneficiaries of the revival?

• Through a massive expansion of indirect finance,
  leading to the sidelining of direct finance
• Through an expansion in credit supply to big
  farmers
• Through an expansion in provision of loans of
  size above Rs 10 crore, and particularly above Rs
  25 crore.

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Financial inclusion or exclusion?
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The exclusion of Dalits and Adivasis from the
formal financial system
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The exclusion of Dalits and Adivasis population
from the formal financial system
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Self-employment generation in India

• Most self-employment programmes are
  credit-subsidy linked.
• The role of IRDP in self-employment generation in
  the 1980s.
• The declining role of IRDP in the 1990s, when
  overall employment generation also stagnated.
• Replacement of IRDP and TRYSEM with the SGSY and
  PMRY.
• SGSY has been linked with the SHG movement.

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Credit flow through SGSY and PMRY
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Number of beneficiaries assisted under SGSY
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• There has been a progressive weakening of the
  public financing of self-employment programmes.
• A strategic shift to self-employment, financed by
  credit, has not taken place.