Financing of Livestock sector – Enhancing credit availability
Atul Chaturvedi
A working group constituted by Reserve Bank of India in 2019 noted that traditional agricultural farmers have better access to credit than livestock and dairy farmers. As 75% livestock farmers are marginal farmers with 2-4 animals, access to credit continues to be a major challenge in India’s animal husbandry and dairying sectors.
The RBI report observed that allied activities (livestock, forestry, and fisheries) receive only 10% of the total agricultural credit while they contribute 40% of the agricultural output.
A major challenge for livestock farmers emanates from the fact that the census defines a farmer based on his landholding. Consequently, it is difficult for farmers without registered land records to avail credit. To remedy the situation, the Government has come up with a series of measures to enhance credit availability and debt financing for farmers and entrepreneurs in the livestock and dairy sector.
Only 41% of small & marginal farmers covered by public & private sector banks, and that leaves the vast majority vulnerable in the face of usurious moneylenders. So, to remedy the situation, the first significant measure in this context came about in 2019 when the Kisan Credit Card facility was extended to farmers in the livestock sector. KCC provides for interest subvention of 2% to banks and Prompt Repayment Incentive of 3% is given to farmers on Short Term Loan for agriculture and allied activities up to Rs 3 lakh which makes the effective rate of interest on such loans at 4%.Importantly, KCC can play an important role in empowering rural women as approximately 70% livestock farmers are women, the majority of whom struggle to access credit due to absence of collateral.
Additionally, the RBI report highlighted the fact that certain states receive more Agri-credit than their Agri-GDP, implying thatcredit may be diverted for non-agricultural reasons. It thus underscores the issue of regional inequity, as states in the central, eastern, and north-eastern areas received very little Agri-credit as a percentage of their agricultural GDP.
In this context, the government came up with a slew of measures attempting to empower the network of cooperatives beginning with a scheme providing for 4% interest subvention on working capital loan to support Dairy Cooperatives and Farmer Producer Organizations during the Covid-19 lockdown under which Rs 333 crores have been released to the National Dairy Development Board (NDDB) to leverage working capital loan of Rs 24,000 crore.
Further, dairy farmers struggle from challenges brought about on account of unreliable electricity supply. Consequently, over 3 percent of milk produced gets wasted. To remedy this, the Dairy Processing and Infrastructure Development Scheme were announced with the objective of providing loan assistance to Dairy Cooperatives and Farmer Producer Organisations across the country. DIDF seeks to upgrade the entire dairy value chain in the country by incentivising projects focused on infrastructure development.
In the past few decades, the private sector has played a formidable role in the dairy processing infrastructure. Currently, there is processing infrastructure gap of about 120-130 MMT, which translates into an investment potential of approximately ₹20,000 crore. If the infrastructure needs for milk processing and distribution are included, then the overall potential investment opportunity is to the tune of ₹1,40,000 crore across the dairy value chain. Considering this, Department of Animal Husbandry & Dairying has come up with a flagship scheme for private companies and entrepreneurs in the form of the Animal Husbandry Infrastructure Development Fund (AHIDF) to provide interest subvention on loan for setting up of processing units related to dairy products, meat products, and animal feed.
Credit guarantee is an important risk mitigating tool which provides cushion to the lender for lending to MSMEs. Hence, credit guarantee fund of Rs 750 crores has been established to provide guaranteed coverage for AHIDF loans up to 25% of the principal loan made available to the borrower. To plug the deficiencies in the value chain, the AHIDF has been revised to extend the scheme to infrastructure related to breed improvement technology, vaccine manufacturing and waste to wealth.
Some of the prime challenges facing our livestock sector pertain to the low productivity levels and lack of affordable quality feed and fodder. Hence, to extend support to farmers in this area, new initiatives have been announced for providing capital subsidy to entrepreneurs towards breed multiplication farms related to cattle, buffalo, sheep, goat, pig and commercial backyard poultry hatcheries.
Similarly, 50% capital subsidy scheme is also being implemented for those rural fodder entrepreneurs who are looking for opportunity to set up facility related to affordable quality feed supply to livestock farmers. Such programmes of capital subsidy and interest subvention can ensure easy availability of bank loans to livestock farmers.
To boost credit availability, earmarking of term loan for banking institutions under ground level credit targets for livestock related activities was announced in the budget of 2021. Based on 192% achievement of 2021-22 targets, similar earmarking has also been done both for term loan and working capital loan for 2022-23.
All such recent measures taken by Government are thus enhancing credit availability in livestock sector which in turn would result in multiplier effect towards entrepreneurship development and wealth creation in rural India.
(The writer is Secretary, Department of Animal Husbandry and Dairying. All views expressed are personal.)
July 26 2022