Top Ten Concerns of Indian Agriculture & A Case for Private Sector Rural Banks

By Sunil S. Bhandare

Summary

Sunil S. Bhandare’s FFE pamphlet, a revised version of an August 2013 MEDC Monthly Digest article, sets out what the author regards as the ten key concerns confronting Indian agriculture as the economy looks beyond 2013-14, and then makes a distinct case for promoting private-sector rural banks. Writing against a backdrop of a good south-west monsoon and projected agricultural recovery, Bhandare argues that the post-reform boom has largely by-passed agriculture and that the promised ‘second green revolution’ remains unfulfilled.

The concerns surveyed in the rendered pages include the secular decline in agriculture’s share of national GDP (from 30.3% in 1991-92 to 13.7% in 2012-13), the failure of off-farm employment to absorb the rural labour-force (which still depends on agriculture at roughly 49%), the stagnation of capital formation in agriculture (gross capital formation falling from about 11% to 7.5-9% of the sector’s GDP), persistently inadequate productivity growth across rice, wheat, pulses and cotton relative to other major producers, and an unprecedented run-up in minimum support prices between 2004-05 and 2012-13 that the author links to food inflation.

The pamphlet then turns to the inadequacy of institutional rural credit: despite five decades of banking transformation, roughly 480 million Indians remain unbanked and the share of institutional rural credit is still low, leaving farmers exposed to high-cost informal debt. Bhandare’s prescription is a new framework of Private Sector Rural Banks to deepen financial inclusion, foster healthy competition with public banks, cooperatives, RRBs and micro-finance institutions, build local banking manpower, and reduce non-performing assets. He frames this as timely given the RBI’s then-ongoing scrutiny of applications for new private banks.

Key points

• Post-reform growth has by-passed agriculture; the ‘second green revolution’ remains unfulfilled.

• Concern 1 — agriculture’s share of GDP fell from 30.3% (1991-92) to 13.7% (2012-13) and could drift below 12%.

• Concern 2 — off-farm employment has not reduced dependence on agriculture, which still supports ~49% of the labour-force.

• Concern 3 — stagnant capital formation; gross capital formation in agriculture fell from ~11% to 7.5-9% of sector GDP.

• Concern 4 — inadequate productivity growth across rice, wheat, pulses and cotton versus other major producers.

• Concern 5 — unprecedented MSP increases (2004-05 to 2012-13), often more than double-digit, linked to food inflation.

• Roughly 480 million Indians remain unbanked; institutional rural credit is still inadequate, leaving farmers in high-cost debt.

• The author’s central proposal: promote Private Sector Rural Banks to deepen financial inclusion and rural banking.

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