In the recent years, there has been a serious concern in the policy circles regarding high cost and insufficient credit available in Indian farm sector. Efficient futures market and a sound warehouse receipts system can stabilize the incomes of farmers. Higher and stable income of the farmers will lead to emergence of a sustainable credit market in rural areas with high demand for credit coupled with high percentage of repayments of loans.

Timely availability of adequate credit is crucial for development of agriculture sector and the rural economy. The finance minister announced in the Budget 2003-04 that private banks would be encouraged to open branches in rural areas to service both farm and non-farm sectors and that the issue of franchising agricultural credit, including through post offices, would be examined afresh. In the interim budget for 2004-05, the finance minister expressed his concern for poor off-take and high cost of agricultural credit. He announced various measures like creation of Rs. 15,000 cr fund for cooperative sector, reduction of lending rates for loans made to the agricultural sector at 200 basis points below PLR, special packages for tea and sugar sectors and a change in the collateral norms wherein the banks cannot insist on mortgaging the farmer's entire land holding as collateral. While these initiatives will widen the outreach of the rural credit dispensation, a significant increase in credit flow to agriculture sector can be expected only when the depth of the credit market in rural areas increases. This can be achieved by developing an efficient futures market for agricultural commodities and by introducing warehouse receipt-based financing system in India.

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