Credit to employment-intensive sectors: Is the revival real?R. RamakumarPallavi Chavan
Rate of growth of credit from scheduled commercial banks to major employment generating sectors, 1975-2006, in per cent per annum
Item 1974-75 to 1979-80
1980-81 to 1989-90
1990-91 to 1999-2000
2000-2001 to 2005-06
Growth rates of credit supply to (per cent): Agriculture 20.4 8.7 1.8 20.5 Artisans and craftsmen 27.4 21.0 2.3 14.1 Small-scale industries 12.0 7.5 2.4 4.1 All sectors 12.9 7.9 6.7 17.7 Decadal growth rates of real GDP from (per cent): Agriculture 1.1 4.7 3.4 1.9 Agriculture and allied sectors 0.9 4.4 3.4 2.0 Unregistered manufacturing 4.7 5.8 6.3 4.8 Source: RBI, CSO Note: Growth rates of credit supply have been estimated after deflating with GDP deflator.
Log plots of credit supply from scheduled commercial banks to major employment generating sectors, 1975-2006
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
18.019
75
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
Year
Logs
of d
efla
ted
cred
it se
ries
Agriculture Artisans & Craftsmen SSIs
Amount of credit outstanding per million population in rural areas, deflated figures, 1975-76 to 2005-06
0
20000
40000
60000
80000
100000
120000
140000
1975
-76
1976
-77
1977
-78
1978
-79
1979
-80
1980
-81
1981
-82
1982
-83
1983
-84
1984
-85
1985
-86
1986
-87
1987
-88
1988
-89
1989
-90
1990
-91
1991
-92
1992
-93
1993
-94
1994
-95
1995
-96
1996
-97
1997
-98
1998
-99
1999
-00
2000
-01
2001
-02
2002
-03
2003
-04
2004
-05
2005
-06
Year
Cre
dit p
er m
illio
n po
pula
tion
(Rs)
Agriculture Artisans and craftsmen SSI
Actual trends in credit supply to agriculture between 1980 and 2006, and projected linear trend from the 1980s
13.0
13.5
14.0
14.5
15.0
15.5
16.0
16.5
17.0
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
Year
Logs
of d
efla
ted
cred
it su
pply
to a
gric
ultu
re
Credit to agriculture Credit to agriculture-1980s Linear (Credit to agriculture-1980s)
Actual trends in credit supply to artisans and craftsmen between 1975 and 2006, and projected linear trend from the 1980s
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
Year
Log
of d
efla
ted
cred
it su
pply
to A
&C
Log credit to A&C Log credit to A&C-1980s Linear (Log credit to A&C-1980s)
Actual trends in credit supply to SSIs between 1975 and 2006, and projected linear trend from the 1980s
13.0
13.5
14.0
14.5
15.0
15.5
16.0
16.5
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
Year
Log
of d
efla
ted
cred
it to
SS
Is
Log credit to SSIs Log credit to SSIs-1980s Linear (Log credit to SSIs-1980s)
So, in agriculture, The sharp increase in flow of credit after the
late-1990s has not led to a revival in the growth rates of agricultural GDP.
On the employment front, between 1999-00 and 2004-05, the growth rate of agricultural wage employment declined.
Are certain features of the credit revival holding back its growth and employment linkages?
First, the growth rate in agricultural credit in the 2000s originates primarily from a growth in indirect finance to agriculture
Item 1974-75 to 1979-80
1980-81 to 1989-90
1990-91 to 1999-2000
2000-2001 to 2005-06
Growth rates of credit supply to agriculture (per cent):
(i) Total credit 20.4 8.7 1.8 20.5
(ii) Direct finance 23.3 10.0 1.5 17.4
(iii) Indirect finance 12.9 2.7 3.5 32.9 Source: RBI, CSO Note: Growth rates of credit supply have been estimated after deflating with GDP deflator.
Direct finance is credit given directly to agriculturists. Indirect finance refers to credit given to institutions and organisations that contribute to agricultural production.
Changes in the shares of direct and indirect finance in total agricultural finance, India, 1985 to 2006, in per cent
Share in total agricultural finance Year
Direct finance Indirect finance Total
1985 83.2 16.8 100.0 1990 86.8 13.2 100.0 1995 85.9 14.1 100.0 2000 84.5 15.5 100.0 2001 83.9 16.1 100.0 2002 74.1 25.9 100.0 2003 77.8 22.2 100.0 2004 72.8 27.2 100.0 2005 76.1 23.9 100.0 2006 72.1 27.9 100.0
Source: Basic Statistical Returns, RBI, various issues.
Actual trends in supply of direct finance to agriculture between 1980 and 2006, and projected linear trend from the 1980s
13.0
13.5
14.0
14.5
15.0
15.5
16.0
16.5
17.0
17.5
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
Year
Log
of d
efla
ted
supp
ly o
f dire
ct fi
nanc
e
Direct Finance 1980s Linear (1980s)
Actual trends in supply of indirect finance to agriculture between 1980 and 2006, and projected linear trend from the 1980s
11.5
12.0
12.5
13.0
13.5
14.0
14.5
15.0
15.5
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
Year
Log
of d
efla
ted
supp
ly o
f ind
irect
fina
nce
Indirect finance 1980s Linear (1980s)
New components of indirect finance Lending to NBFCs for on-lending to agriculture
(agri-clinics and agri-business); Loans to Electricity Boards to reimburse
expenditure incurred on providing power to agriculture;
Deposits held by banks in RIDF maintained with NABARD (deficits on priority sector);
Finance to dealers in drip/sprinkler irrigation systems and agricultural machinery;
Subscriptions to bonds issued by NABARD for financing agriculture and allied activities.
Secondly, a very large share of the incremental credit supply has been obtained by big farmers
In the RBI publications, cultivators are divided in the following way according to land size-classes:
Marginal cultivators: < 2.5 acres Small cultivators: 2.5 to 5 acres Big cultivators: > 5 acres
Amount of agricultural credit outstanding per account by land size classes, 1980-81 to 2003-04
0
10
20
30
40
50
60
70
1980
-81
1981
-82
1982
-83
1983
-84
1984
-85
1985
-86
1986
-87
1987
-88
1988
-89
1989
-90
1990
-91
1991
-92
1992
-93
1993
-94
1994
-95
1995
-96
1996
-97
1997
-98
1998
-99
1999
-00
2000
-01
2001
-02
2002
-03
2003
-04
Years
Am
ount
out
stan
ding
per
acc
ount
(in
Rs
'000
)
Marginal cultivators Small cultivators Big cultivators
Amount (deflated) per account for big cultivators: Rough trend lines for the 1990s and 2000s
0.0
5.0
10.0
15.0
20.0
25.0
30.0
35.0
40.0
45.019
80-8
1
1981
-82
1982
-83
1983
-84
1984
-85
1985
-86
1986
-87
1987
-88
1988
-89
1989
-90
1990
-91
1991
-92
1992
-93
1993
-94
1994
-95
1995
-96
1996
-97
1997
-98
1998
-99
1999
-00
2000
-01
2001
-02
2002
-03
2003
-04
Deflated big Deflated big-1990s Deflated big-2000s Linear (Deflated big-1990s) Linear (Deflated big-2000s)
Distribution of amount outstanding under total agricultural finance by scheduled commercial banks, by size classes of loans, in per cent
Share in total amount outstanding under agricultural finance (%) Size class of loan (Rs)
1985 1990 1995 2000 2003 2005 2006 25000 and less 49.6 58.7 52.0 35.2 23.6 17.8 13.3 25000 – 2 lakh 23.9 26.0 32.4 34.4 34.1 31.4 2 lakh to 10 lakh
35.3 4.3 5.1 11.7 14.0 17.9 19.7
10 lakh to 1 crore 7.4 7.6 7.6 6.6 6.3 6.4 6.1 1 crore to 10 crore 4.6 4.2 5.6 6.7 7.4 8.0 8.5 10 crore to 25 crore 1.7 4.0 3.3 4.3 Above 25 crore
3.0 1.3 3.5 5.7 10.4 12.6 16.8
Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 Source: Basic Statistical Returns, RBI, various issues.
Thirdly, the revival has been driven by a remarkable growth in loans above Rs 10 crore
Distribution of amount outstanding under indirect agricultural finance by scheduled commercial banks, by size classes of loans, in per cent
Share in total amount outstanding under indirect agricultural finance (%) Size class of loan (Rs)
1985 1990 1995 2000 2003 2005 2006 25000 and less 7.4 10.1 6.9 2.8 2.8 1.6 0.9 25000 – 2 lakh 9.2 4.5 5.2 3.9 3.1 2.2 2 lakh to 10 lakh
19.7 8.7 8.8 5.6 10.8 6.8 4.7
10 lakh to 1 crore 32.4 40.1 32.2 21.7 11.7 12.4 9.5 1 crore to 10 crore 22.8 24.0 25.5 25.9 19.2 20.6 19.7 10 crore to 25 crore 8.6 11.7 9.3 9.6 Above 25 crore
17.7 7.9 22.2 30.3 39.9 46.2 53.5
Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 Source: Basic Statistical Returns, RBI, various issues.
Who are the beneficiaries of the revival? Through a massive expansion of indirect
finance, leading to the sidelining of direct finance;
Through an expansion in credit supply to big farmers;
Through an expansion in provision of loans of size above Rs 10 crore, and particularly above Rs 25 crore.
Financial inclusion or exclusion?Distribution of Small Borrowal Accounts (accounts and amount) by major employment generating sectors, 1993-2004, in per cent
Share of number of accounts outstanding (%)
Share in total amount outstanding (%) Item
1993 1997 2001 2004 1993 1997 2001 2004 Agriculture and allied activities 45.8 45.5 38.8 33.4 42.4 42.2 32.1 29.1
Direct finance to agriculture and allied
activities - - 38.3 32.5 - - 31.5 28.4
Artisans and craftsmen and village and cottage industries
5.2 4.9 - - 3.6 3.2 - -
Other Small Scale Industries 2.8 2.2 - - 3.3 2.4 - -
Personal loans 14.2* 21.0* 30.9 41.8 18.3* 27.0* 36.7 43.3 Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 Source: RBI, Survey of Small Borrowal Accounts, various issues. Notes: - is Not available; * - includes personal loans and professional services.
The exclusion of Dalits and Adivasis from the formal financial system
Percentage share in the number of small borrowal accounts and amount outstanding, India 1993-2004 Share of number of Accounts
(%) Share in amount outstanding
(%) Caste category 1993 1997 2001 2004 1993 1997 2001 2004
Dalit 18.0 17.8 12.2 6.7 12.4 12.7 7.1 4.6
Adivasi 9.6 8.9 6.1 3.7 5.2 6.6 3.8 2.6 Non-Dalit/ Adivasi 71.3 72.7 80.7 87.4 81.5 80.1 87.8 90.0
All 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 Source: RBI, Survey of Small Borrowal Accounts, various issues, http:/ / www.indiastat.com. Note: Small borrowal accounts indicate accounts with individual credit limit of up to Rs. 2 lakh since 1999 and Rs. 25,000 previously.
The exclusion of Dalits and Adivasis population from the formal financial system
Amount of credit per capita and number of Small Borrowal Accounts per 1000 persons for Dalit and non-Dalit/ Adivasi population, India, 1993 to 2004
Amount of credit per capita (deflated Rupees)
Number of Small Borrowal Accounts per 1000 persons Caste category
1993 1997 2001 2004 1993 1997 2001 2004
Dalit 495 193 285 225 77 46 37 23
Adivasi 421 200 302 248 84 46 37 25 Non-Dalit/ Adivasi 708 262 756 936 67 41 52 64
All 656 246 651 765 70 42 49 54 Source: RBI, Survey of Small Borrowal Accounts, various issues; Population Census of India (1991; 2001);
RBI, Handbook of Statistics on Indian Economy (2006).
Total refinance disbursement to SC/ST population in India by NABARD, deflated figures, 2000-01 to 2006-07, in Rs lakh
0
1000
2000
3000
4000
5000
6000
2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07
SC/ST - Farm sector SC/ST - Non-farm sector
Self-employment generation in India Most self-employment programmes are credit-subsidy
linked.
The role of IRDP in self-employment generation in the 1980s.
The declining role of IRDP in the 1990s, when overall employment generation also stagnated.
Replacement of IRDP and TRYSEM with the SGSY and PMRY.
SGSY has been linked with the SHG movement.
Trends in the shares of budgetary outlays for wage-employment and self-employment programmes in the total outlay for the Ministry of Rural Development, 1990-91 to 2006-07, in per cent
0.0
10.0
20.0
30.0
40.0
50.0
60.0
70.0
80.0
90.0
1990
-91
1991
-92
1992
-93
1993
-94
1994
-95
1995
-96
1996
-97
1997
-98
1998
-99
1999
-00
2000
-01
2001
-02
2002
-03
2003
-04
2004
-05
2005
-06
2006
-07
Year
Sha
re o
f out
lay
in p
er c
ent
Share of self-employment programmes Share of wage employment programmes
Trends in the budgetary outlays for wage employment and self-employment schemes of the government, deflated figures, 1990-91 to 2006-07
0.0
2000.0
4000.0
6000.0
8000.0
10000.0
12000.0
14000.0
1990
-91
1991
-92
1992
-93
1993
-94
1994
-95
1995
-96
1996
-97
1997
-98
1998
-99
1999
-00
2000
-01
2001
-02
2002
-03
2003
-04
2004
-05
2005
-06
2006
-07
Year
Rea
l out
lays
(in
Rs
cror
es)
IRDP+SGSY+TRYSEM JRY+EAS+FWP+SGRY+NREGP Total
Credit flow through SGSY and PMRYRefinance disbursement for SGSY and PMRY in India by NABARD, deflated figures, 2000-01 to
2006-07, in Rs lakh
0
5000
10000
15000
20000
25000
30000
35000
2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07
Year
Ref
inan
ce d
isbu
rsed
(def
late
d, in
Rs
lakh
)
PMRY SGSY
Number of beneficiaries assisted under SGSYNumber of disadvantaged group members assisted under SGSY, SC, ST and women, 1999-00 to
2005-06
0
100000
200000
300000
400000
500000
600000
700000
1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06
Year
Num
ber o
f ben
efic
iarie
s
SC ST Women
Distribution of accounts and amount outstanding related to different government schemes among Small Borrowal Accounts (SBA), 1997, 2001 and 2004, in per cent Item IRDP+SGSY PMRY+SEEUY Others Total Share of number of accounts (%):
1997 34.6 1.4 64.0 100 2001 18.6 2.4 79.0 100 2004 8.0 2.1 89.9 100
Share of amount outstanding (%): 1997 24.2 2.4 73.4 100 2001 8.4 4.2 87.4 100 2004 3.5 3.4 93.1 100
Source: RBI, Survey of Small Borrowal Accounts, various issues.
Total refinance disbursement by NABARD on all government schemes, deflated figures, in Rs lakh, 1987-88 to 2005-06
0
10000
20000
30000
40000
50000
60000
70000
80000
90000
1987
-88
1988
-89
1989
-90
1990
-91
1991
-92
1992
-93
1993
-94
1994
-95
1995
-96
1996
-97
1997
-98
1998
-99
1999
-00
2000
-01
2001
-02
2002
-03
2003
-04
2004
-05
2005
-06
Year
Def
late
d re
finan
ce (R
s la
kh)
There has been a progressive weakening of the public financing of self-employment programmes.
A strategic shift to self-employment, financed by credit, has not taken place.