AGRICULTURAL FINANCE
Agricultural finance generally means studying, examining and analyzing the financial aspects pertaining to farm business, which is the core sector of India. The financial aspects include money matters relating to production of agricultural products and their disposal.
Definition of Agricultural finance:
Murray (1953) defined agricultural finance as “an economic study of borrowing funds by farmers, the organization and operation of farm lending agencies and of society’s interest in credit for agriculture.”
Tandon and Dhondyal (1962) defined agricultural finance “as a branch of agricultural economics, which deals with and financial resources related to individual farm units.”
Nature and Scope:
Agricultural finance can be dealt at both micro level and macro level. Macro finance deals with different sources of raising funds for agriculture as a whole in the economy. It is also concerned with the lending procedure, rules, regulations, monitoring and controlling of different agricultural credit institutions. Hence macro-finance is related to financing of agriculture at aggregate level.
Micro-finance refers to financial management of the individual farm business units. And it is concerned with the study as to how the individual farmer considers various sources of credit, quantum of credit to be borrowed from each source and how he allocates the same among the alternative uses within the farm. It is also concerned with the future use of funds.
Therefore, macro-finance deals with the aspects relating to total credit needs of the agricultural sector, the terms and conditions under which the credit is available and the method of use of total credit for the development of agriculture, while micro-finance refers to the financial management of individual farm business.
Significance of Agricultural Finance:
Agril.finance assumes vital and significant importance in the agro – socio – economic development of the country both at macro and micro level.
It is playing a catalytic role in strengthening the farm business and augmenting the productivity of scarce resources. When newly developed potential seeds are combined with purchased inputs like fertilizers & plant protection chemicals in appropriate / requisite proportions will result in higher productivity.
Use of new technological inputs purchased through farm finance helps to increase the agricultural productivity.
Accretion to in farm assets and farm supporting infrastructure provided by large scale financial investment activities results in increased farm income.
Farm finance can also reduce the regional economic imbalances and is equally good at reducing the inter–farm asset and wealth variations.
Farm finance is like a lever with both forward and backward linkages to the economic development at micro and macro level.
As Indian agriculture is still traditional and subsistence in nature, agricultural finance is needed to create the supporting infrastructure for adoption of new technology. Massive investment is needed to carry out major and minor irrigation projects, rural electrification, installation of fertilizer and pesticide plants, execution of agricultural promotional programmes and poverty alleviation programmes in the country.
Three basic economic activities constitute the managerial process of the farm. They are production activities, financing activities and marketing activities. Production activities comprise the decisions like what products to be produced, method of production and how much of each product should be produced. Financial activities relate to decisions of obtaining and use of credit. Marketing activities involve managerial decisions related to procurement of inputs and distribution and sale of output.
Financial decisions more often than not overlap the production and marketing decisions. For example, nature of enterprises and the quantum of the product determine the amount of capital and provide solution to the decisions of how much capital should be used in the farm business.
Evaluation and involvement of alternatives among enterprises is linked with the decisions of how products are produced. Analogously, marketing decisions are linked with financial decisions, because product marketing and selection of input marketing are often determined by the quantum of financing. Thus, we should recognize that production, financing and marketing decisions are concerned with financial acquisition and financial use depending upon the goals of financial manager.
Importance of Finance:
Agricultural finance is one of the most important inputs in all agricultural development activities for increasing agricultural production. It is necessary that farmers must be provided with adequate and timely finance for irrigation, farm mechanization and land development etc.
Agricultural finance is very important instrument in facilitating the process of agricultural activities.
Finance is very important in the context of new strategy and for making the agricultural sector up to date and modern.
Agricultural credit itself is not a input but it helps creating environment for adoption of modern production technology using more production inputs and encouraging private investments on the farms.
Both non-institutional credit agents give money lenders, landholders’ relatives, trader’s friends and institution credits agents like co-operatives, commercial banks are in operation.
As the available resources base and the capacity to generate sufficient levels of financial resource within the rural sector particularly in the agriculture sector is limited at present, institutional financing is considered as principle source of external finance to support and accelerate the development of the agriculture sector. The provision of adequate, timely and liberal credit to the farmers has become an integral part of the agricultural development policy in India.
The involvement of commercial banks in agricultural development was negligible and was largely in terms of indirect credit. The nationalization of 14 major banks in July, 1969 and 6 banks in April 1980 gave further impetus to farm finance by commercial banking facilities to hitherto neglected are. Special attention was given to priority sector including agriculture and special programmes and schemes ware launched to help the weaver section including small and marginal farmers.
In ancient period agriculture was subsistence type, capital need was less for agricultural production and hence, credit was also limited. In course of time agriculture became more capital intensive and hence credit intensive. In India about 69 per cent cultivators are small and marginal cultivators, their income level is quite low. Low income results into low saving, because of low saving one can not make additional investment and again has to face low income. Thus, Indian cultivators are found in a vicious circle, to break this circle, credit is essential. Investment in agriculture at the time of sowing and developing of crops is required and if the farmer is not having his own funds then credit can fulfill these needs.
Agriculture is an important industry and like other industries it also requires capital. Due to the peculiarities of agriculture, especially its uncertainties, low returns, high rate of rent and limited scope for employment, a large number of cultivators cannot manage the needed finance without recourse to borrowing. One of the most important lessons of universal agrarian history is that the agriculturist must borrow, due to the fact that an agriculturist's capital is locked up in his lands and stocks. For stimulating the tempo of agricultural production, it is necessary that the farmer must be provided with adequate and timely credit.
Farm finance is not a just a science to manage the money, but is an applied science allocating scare resources to derive the optimum output. The role of farm finance in strengthening and development of both input and output markets in agriculture is crucial and significant. Indian agriculture is still traditional, subsistence and stagnant in nature, hence agricultural finance is needed to create the supporting infrastructure for adoption of new technology. Massive investment is needed to carry out major and minor irrigation projects, rural electrification, installation of fertilizers and chemical plants and poverty alleviation programmes in the country.
Farm finance has vital impotence in the agro-socio economic development of the country both individual /micro level and at aggregate /macro level. It is importance for higher productivity of resources.
- Application of new technological inputs
- Accretion to farm assets & farm income, improve the living standards of rural masses.
- It reduce the regional economic imbalances is equally good at narrowing down the inter farm
asset is wealth variations.
- It strengthening and development of both input & output marketing in agril.
- It needed to create the supporting infrastructure for adoption of new technology