IN the backdrop of increasing number of suicides being reported from many state’s, extending institutional credit to farmers and rural areas is a crying need. But, the trend is in the opposite direction. Measures such as bank loan waivers or rescheduling of loans, etc., only help the upper layer of the agrarian society, as small peasants do not have access to institutional credit in many cases. Re-incarnation of low interest bank loans as heavy interest usury is a very common occurrence in the countryside. Moneylenders take loans from credit institutions on various pretexts at low interest and lend it to peasants at an exorbitant rate of interest.

The two committees appointed for the purpose of scrutinizing the operation of banking system in the country have recommended cutting down the allocation for agricultural lending under priority sector from its present level of 18% of net bank lending. In practice, the pattern of actual lending has already been depressed to 10%. The interest rate for agriculture is too high ranging from 16-18% while the urban middle classes are being offered housing and consumer loans at about 9%. Moreover, short-term advances to plantations have been brought under direct lending to agriculture. It is also recommended to expand the definition of ‘priority sector’ sc as to include sectors like food processing, and related service activities, fisheries, poultry and dairying in agriculture. The only thing untouched by these committees was the 10% net bank credit earmarked for weaker sections under priority sector lending. However, a major portion of this is used for the purpose of government-sponsored poverty alleviation and employment generation schemes. These committees have gone a step ahead by suggesting the inclusion of financing and distributing agricultural inputs and machineries (basically the operations handled by traders) and Systems Improvement Schemes in rural areas by State Electricity Boards under the category of 'indirect' advances to agriculture. These recommendations are meant to impose a major squeeze on agricultural credit.

The recommendations of these committees loyally adhere to the conditionalities of the World Bank to slash down the meagre credit available for agriculture based on the so-called free market doctrine. The class bias, anti-peasant bias, in the financial system is very obvious. Already, institutional finances cover only 15% of actual agricultural credit requirements. The recommendations of these various committees are aimed at squeezing it further. At the same time, even corporate houses and multinational companies are now deemed entitled to become recipients of agricultural credit. The traders too, who are moneylenders in most of the cases, are brought under the agricultural credit mechanism so as to facilitate gradual withdrawal of banking system from agricultural lending. This also signifies indirect encouragement to the financial strangulation of the peasants by usurious capital in the countryside.

Clearly, the course of developments in the financial sector is headed in the direction of removing majority of agricultural population, particularly small and marginal peasants out of the purview of the banking system. Indeed, the very foundation of institutional finance for agriculture and non-farm rural production is being systematically dismantled. The growing hype over Self-Help Groups is intended to cover up this hard brutal reality.