Credit facilities and indebtedness of Indian farmers

Several studies observe that if the cash benefits are timely reached it has really helped the farmers through technology adoption and realization of higher returns for the farmers.

- Kishore Kumar Biswas

In India credit is inevitable for the small and marginal farmers. This is because the farm sector income is low and their saving capacity - making them vulnerable to several risks. The formal banking sector loans are cheaper and more suitable for farmers but there have been problems regarding accessibility. Loans against gold or jewellery as collateral is possible only for the well-off farmers.

Two important observations on credit and indebtedness of National Bank for Agriculture and Rural Development (NABARD) Farm Loan Waivers in India - Assessing Impact and Looking Ahead, 2021) are presented below

One, indebtedness is inevitable for Indian farmers. A recent NABARD study observes this. It points out that by writing off a farmer’s past dues and providing him/her with an access to fresh credit, governments try to reduce farmers’ distress. But the problem is with the cyclicality of debts. A farmer in India is plagued with multiple distortions that make the business of farming volatile and inevitable. The production cycle, coupled with other factors, makes it impossible for farmers not to be indebted and the income instability makes it difficult to come out from a cycle of debt.