Agriculture Value Chain Financing

(A booster for priority sector lending)

- Pravindra Kumar

Banks are not only dealing with money; they are also catalytic agents in Accelerating the growth and development of different sectors of the economy. In a developing economy which is suffering from inadequacy of capital, certain sectors and sections of the society need special and priority attention in the matter of funds availability.

The need of flow of credit to certain sectors of the economy known as priority sectors can be traced to the Reserve bank's credit policy for the year 1967-1968. Several changes are made (2015) in Priority sector lending norms by the RBI after the working group (2014) recommendations. The priority sector non-achievement will be assessed on quarterly average basis at the end of the respective year from 2016-17 onwards, instead of annual basis as at present. Among all priority sector, Agriculture is the most important sector. Agriculture is a source of livelihood for about half of Indian population.

The environment for agricultural finance is further influenced by the growing concentration of control in the agricultural sector. Driven by gains from economies of scale and globalization of the food chain along with access to resources, multinational and other interconnected agribusinesses have a greater impact in a sector that is characterized by increasing vertical and horizontal integration.

Concept of value chain

A Value Chain in agriculture describes the range of activities and set of actors that bring agricultural product from production in the field to final consumption, wherein at each stage value is added to the product. Value chains may include a wide range of activities.