Roadmap for Answer Writing 1. Introduction Purpose: Introduce the concept of Direct Benefit Transfer (DBT) and its intended role in improving subsidy delivery in India. Key Point: Highlight the potential changes in the subsidy scenario with the replacement of price subsidies by DBT. Relevant ...
Model Answer Introduction The Government of India has prioritized agriculture and primary sector lending, increasing fund allocations over the years. However, a study by the Reserve Bank of India (RBI) reveals that only about 3% of the credit offtake reserved for the primary sector is utilized by smRead more
Model Answer
Introduction
The Government of India has prioritized agriculture and primary sector lending, increasing fund allocations over the years. However, a study by the Reserve Bank of India (RBI) reveals that only about 3% of the credit offtake reserved for the primary sector is utilized by small and medium farmers. Instead, large farmers and agriculture-based industries have become the primary beneficiaries of expanded credit. This highlights the need for alternative credit mechanisms, such as cooperative societies.
Reasons Why Banks Struggle to Finance Agriculture
- Lack of Documentation
- Many small and marginal farmers lack the necessary Know Your Customer (KYC) documentation required by banks, making it difficult for them to access loans. In contrast, cooperative societies maintain detailed records of their members, allowing them to forgo complex documentation requirements.
- Unpredictability of Agriculture
- Agriculture is inherently unpredictable, with crop failures due to inadequate irrigation or erratic monsoons leading to significant distress in rural communities. While banks often resort to dispossession for loan recovery, cooperative societies typically seek alternative recovery methods that consider the farmers’ circumstances.
- Accessibility of Local Moneylenders
- Local moneylenders are more accessible for small farmers, despite charging high-interest rates. The urgency of adopting Green Revolution techniques, which require substantial capital, forces farmers to rely on these lenders, often sacrificing their financial stability.
- Limited Financial Returns for Banks
- Agricultural lending does not yield significant profits for banks, leading to inadequate services for rural clients. The risk of farm loan waivers further complicates recovery efforts, deterring banks from engaging with agricultural credit.
Conclusion
In rural areas, cooperative societies serve as an ideal credit organization, addressing the unique needs of local farmers. They have deep community roots, enabling better-targeted coverage and improved loan recovery. While formal banking is essential, banks must develop tailored products for rural credit, leveraging technology to enhance accessibility and reduce transaction costs. By doing so, they can effectively support the agricultural sector and empower local economies.
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Model Answer Introduction The introduction of Direct Benefit Transfer (DBT) in India aims to streamline the flow of funds and information to beneficiaries, minimizing fraud in the subsidy delivery system. Replacing price subsidies with DBT could significantly transform the subsidy landscape in the cRead more
Model Answer
Introduction
The introduction of Direct Benefit Transfer (DBT) in India aims to streamline the flow of funds and information to beneficiaries, minimizing fraud in the subsidy delivery system. Replacing price subsidies with DBT could significantly transform the subsidy landscape in the country.
Changes in the Subsidy Scenario
1. Reduction in Leakage
2. Better Targeting of Benefits
3. Reduction in Fiscal Deficit
4. Empowering Beneficiaries
Conclusion
The transition from price subsidies to Direct Benefit Transfer aims not to eliminate subsidies but to enhance their effectiveness by ensuring that funds reach the intended beneficiaries. DBT has the potential to significantly reduce subsidy amounts, minimize leakage, and empower individuals, making it a transformative tool for India’s subsidy reform.
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