Taking Rural Sikkim >>Forward

NABARD projects Rs. 486.86 crore credit potential for rural Sikkim, now for the banks to deliver

Bankers in Sikkim now have at their disposal a detailed checklist on Sikkim’s credit potential in agriculture and allied sectors for 2015-16. With the new financial year yet to begin, more pressure should be exerted on banks here to align their credit policies in sync with what the National Bank for Agriculture and Rural Development [NABARD] has projected for Sikkim in its State Focus Paper 2015-16 which was released on 05 February.
As per this document, the total priority sector credit potential for Sikkim stands at Rs. 486.86 crores, of which, the share of agriculture has been calculated at Rs. 176.37 crore. These are handsome figures, and the State Focus Paper provides a detailed breakdown on where and how the loans can be extended.

Even if the banks were to meet the stipulated benchmark level of 40% [for priority sector] and 18% for agricultural advances in comparison to the total volume of loans cleared, the rural economy will receive a strong infusion of capital to propel itself to a new level of prosperity. Unfortunately, if past experiences are any indication, this document will again remain only an academic exercise, with ground level credit flow woefully short of the projected potential. As of 31 March 2014 for instance, banks in Sikkim had issued loans in the priority sector at a miniscule 8.44% of the total volume of advances against a stipulated benchmark of 40% and for agricultural advances, the overall achievement of banks was an even more dismal 1.51% [of the total loans made out] against the stipulation of at least 18%!

WHAT IS THE STATE FOCUS PAPER?
Every year, NABARD takes up a detailed exercise in all districts across the country to map the credit potential and then make projection on what is required by way of loans to stimulate balanced growth. Here, the emphasis is mainly on the key stakeholders in the development process - the district administration, implementing departments, banks, farmers etc. The potential mapping process entails constant updating of available infrastructure in the districts, on the basis of which the potential for Ground Level Credit is projected. This exercise, officials inform, is vetted by technical experts from different disciplines at the regional offices of NABARD.
In an ideal world, NABARD's Potential Linked Credit Plan (PLP) would be a much sought after document for banks, departments related to development and the academia since it offers a fair idea on emerging trends and highlights the focus areas. The State Focus Paper consolidates the potential for deployment of credit to priority sector, the constraints and issues pertaining to various sectors as well as suggestions for improvement in credit flow and the critical gaps in infrastructure.
The Rs. 486.86 crore credit flow projection made for Sikkim for 2015-16 in the latest State Focus Paper is a 6% increase over the Rs. 461.21 crore projected for 2014-15.

THE PROJECTIONS FOR SIKKIM
The Rs. 486.86 crore credit potential projection for Sikkim is divided among four broad sectors. Crop loans to cover production, maintenance and marketing are projected for Rs. 116.74 crore credit potential, agricultural term loans at Rs. 59.6 crores, MSME sector including food and agro processing at Rs. 35.85 crore and other priority sectors at Rs. 274.62 crore.
Crop loans, which figure in the primary sector, are an important aspect of intervention in rural Sikkim because a staggering majority of the farmers fall in the small and marginal category, hence not in a position to invest substantially in production, maintenance or marketing on their own. This liquidity handicap stymies their potential and keeps them hovering on or just above the subsistence level. As per the Agriculture Census of 2010-11, there are 73,426 farmers in Sikkim out of whom 77% fall in the small and marginal category, working on fields averaging 0.64 hectares. As per the said census, this 77% of Sikkim’s farming community is working 33% of the land available for cultivation. What should also be a worry for a State which still has agriculture as its primary activity is the decline recorded in the average size of operational land holdings – down from 1.94 hectares in 2006-07 to 1.48 hectares in 2010-11.
With agriculture losing its appeal, as is apparent across the State, and with a majority of the farmers working on a sliver of the available land, it comes as no surprise that farm productivity here, already lower than the national average, is also lower than even the regional average. Crop loans then become an important assistance if agriculture is to be promoted and the Organic Farming potential harnessed to the full.
The State Focus Paper has pegged the credit potential for crop loans at Rs. 116.74 crore for 2015-16 with Ginger cultivation projected for the highest assistance at Rs. 41.98 crore. This is expected given that Ginger also has the highest share of cultivated land at 3,115 hectares out of the 1,07,752 hectares available for cultivation in Sikkim. Vegetables and potato, with a total acreage of 2,836 acres, are projected for Rs. 17.01 crore in crop loans while Large Cardamom [1,145 hectares] pegged for Rs. 6.68 crore.
The Focus Paper also recognizes that the projections are hamstrung by ground realities in which credit outflow to crop loans is low, and even when that happens, there is under-financing. A possible reason for this could be that banks are given leverage here to calculate the amount of credit based on location, crop, season etc. Elsewhere, the scale of finance is worked out by district level committees [in Sikkim, perhaps given its small size, this is done by the State Level Technical Committee].
Any farmer will also vouch that that while Sikkim receives good rainfall on average, its erratic nature of late and extended run of dry months have become a concern. The Focus Paper has recommended Rs. 43.20 lakh credit for irrigation assistance by way of water storage tanks, sprinklers and drip irrigation.
Land Development initiatives meanwhile are pegged for another Rs. 1.12 crore potential credit for projects ranging from bunding and terracing, rainwater harvesting and vermi-composting. Farm Mechanisation is projected for Rs. 82.53 lakh credit potential with power tillers securing more than half this potential at Rs. 45.72 lakh.
The plantation and horticulture sector has been projected for a Rs. 23.79 crore credit potential to supplement the Sikkim Organic Mission and assist in keeping it on track. Should this financial infusion be provided, the sector will however need to still ensure adequate marketing and price support for growers, making quality planting material available in time, reduce loss to wastage and exploitation by brokers/ market intermediaries. The Focus Paper has flagged these issues as matters of concern.
The potential of Forestry and Wasteland Development has been pegged at Rs. 83.98 lakh with primary focus on bamboo cultivation and tree/ grass plantations.
Animal husbandry, the most important part of the rural economy after agriculture, also receives special attention in the Focus Paper with Rs. 13.23 crore credit potential projected for dairy development, Rs. 4.98 crore for poultry, Rs. 9.39 crore for sheep/ goat/ piggery and Rs. 69.25 lakh for fisheries.
The section on infrastructure development understandably begins with Rs. 3.30 crore potential pegged for godowns in rural Sikkim. As much as such facilities will save farmers from distress selling, they will also save produce from rotting. In Sikkim, between 25 to 30% of the horticultural produce is lost due to improper post-harvest management on account of inadequate storage facilities.
Micro and Small Enterprises, which can also provide a substantial fillip to the rural economy, have in turn been projected for Rs. 34.70 crore credit potential for activities ranging from handloom [Rs. 4.83 cr] to village and rural industries [Rs. 13 crore] to even Rs. 99 lakh for working capital for small scale industries.
The Government of India has identified food processing as one of the potential areas to contain food inflation, food wastage and job creation. There is also a Food Processing Fund established in NABARD by RBI, and the credit potential for food and agro processing for Sikkim in 2015-16 has been projected at Rs. 1.15 crore, Rs. 65.34 lakhs of which is pegged for food agro processing units alone.
Other priority sector interventions ranging from loans to small road transport operators to retail trade, self employment, education and housing loans, consumer loans and micro credit have been projected at Rs. 274.62 crores.
The Focus Paper also devotes a chapter to “Area Based Schemes”, envisaged to provide a roadmap for single-purpose small schemes on cluster basis which can be aggregated at district, region or even agro-climatic zone level, like the Rs. 2 crore spread out among 200 beneficiaries for dairy farming in East Sikkim for instance. These loans come with a refinance option from NABARD and can also be complemented with infrastructure development assistance for infrastructure required for the sector being promoted. Dairy and Poultry have been identified for such assistance in Sikkim.

THE CHALLENGE
The Focus Paper makes for impressive reading since it fleshes out rural Sikkim’s potential to achieve economic vibrancy. This potential, however, can be achieved only if the credit potential is followed up in earnest at least to the stipulated benchmark levels. And then there is also the caveat of policy and bureaucratic delivery on ground. There have however been enough policy undertakings and infrastructure development to reassure that if the financing was extended in time, the tenacity of the farmers will be well complemented by the liquidity offered by loans to allow them the leeway to extract the most for their farms and the market. It is here that a major challenge presents itself. Credit flow on ground is worryingly short of what the Focus Papers have been projecting.
The General Manager, Reserve Bank of India-Gangtok, Manabendra Misra, underlined this concern in clear detail while speaking at the release function of the State Focus Paper recently when he pointed out that while the presence of bank branches in Sikkim was double the national average, its financing performance was well below expected level. “Banks should come forward to finance various activities under agriculture and MSME sectors to increase the ground level credit flow,” he said.
As on 30 Sept 2014, there were 128 bank branches in Sikkim making for the population per bank branch at 4,770.
The deposits raised by banks in Sikkim in 2013-14 stood at Rs. 5,509.02 crore, up from Rs. 4,057.11 crore raised in deposits in 2011-12. The position of outstanding advances of the banks, including credit from outside Sikkim, stood at Rs. 3,992.56 crore for 2013-14.
The figures for outstanding advances can be misleading at face value because when it comes to credit extended in Sikkim, the Credit-Deposit ratio is poor and stands at 37.10%. Add the loans made outside Sikkim by bank branches here, the CD ratio jumps to 72.50% and that in itself should be something that attracts closer attention and re-evaluation.
The State Focus Paper 2015-16 also puts on record: “The decreasing trend in C:D ratio for the last few years should be arrested for the overall development of the State”.
What is clearly suffering as a result of this clearly misplaced priority at the banks are advances to the priority sector to which the entire State Focus Paper is devoted. As of 31 March 2014, against a projected target of Rs. 147 crore in loans to the Agriculture sector, banks in Sikkim extended only Rs. 31.05 crore on ground, a dismal 21.13% achievement rate. This was a substantial drop from the 46.60% achievement registered in 2011-12 when Rs. 33.59 crore was released in loans against the target of Rs. 72.05 crore.
The Focus Paper states: “Despite Sikkim being an agrarian state, the performance of banks in Sikkim in agriculture and allied activities has not been to the expected level and the performance has been well below 50% in the last three years.”
What is of concern is that a contradictory picture is emerging in case of industrial growth where, even though industrialization is limited in Sikkim, credit disbursement in industrial sector was 177.30% of the target in 2011-12, 179.18% of the target in 2012-13 and 63.49% in 2013-14. The tertiary sector has seen steady and rapid growth owing largely to the vehicle and housing loans which get counted in this sector.
Agricultural loans made up a dismal 01.51% percent of the total advances released by banks in Sikkim as of 31 March 2014.

IN CONCLUSION
What remains a worry then is that agriculture remains largely ignored and sidelined even though at the policy level, with initiatives like the Sikkim Organic Mission and the Sikkim Dairy Mission, the State is heavily invested in it.
The State Focus Paper is an important document towards developing agriculture and bringing about rural prosperity. It provides a deep insight into the “exploitable potential” of agriculture and allied activities for development of the rural economy within a specified time-frame.
As its name suggests, it brings important aspects of rural development into focus, but it is still only a collection of projections of what the rural economy has potential to safely absorb by way of loans. The targets are projected and not enforceable. In that sense, the document provides a road-map for banks on how to structure their credit outflow so as to make the most expansive impact on the State’s economy. It should be used as such a road-map, but that has not been happening.
As the document points out, the private sector constitutes a major portion of capital formation in agriculture and investment credit has emerged as a major driver thereby emphasizing the role of banks in boosting farm level investments. The declining trend in investment credit vis-à-vis crop loans thus has serious implications for sustaining capital formation across a wider cross-section of the society.
The State Focus Paper this year is themed, “Accelerating the pace of capital formation in agriculture and allied sector”. The document elaborates in painstaking detail how this can be achieved, but how does one ensure that the banks and the policy makers follow the road-map laid out?
-a NOW! Feature

[with additional inputs from PIB]