Despite accounting for one-third of GDP and employing well over two-third of the population, it is unfortunate that the country’s agriculture sector has remained underserved in terms of finances. While the government’s capital budget allocations in the sector stands at just about 2 percent (Rs 1.4 billion) of the total capital budget, private sector’s loans to the sector too remains at a meager 2.7 percent (Rs 14.19 billion) of their total banking credit portfolio. Since long, the sector has been reeling under poor irrigation facility along with perennial shortage of seeds and fertilizers and high interest rates on agro lending.
A million dollar question, hence, is: Can Nepal afford to continue to ignore such a huge sector? The answer obviously is: No! Moreover, acute shortage of power has greatly constrained the growth of manufacturing industry, the major generator of off-the-farm and gradually booming service sector. Not just in terms of the prospects of employment generation, the country’s leaders and policy makers cannot afford to ignore the sector from food security and trade perspectives as well. Despite being an agrarian economy, Nepal imports meat, livestock and vegetables, food grains and edible oil to fulfill the domestic demand. But with farmers readily giving up their profession due mainly to low productivity and returns, such a situation was bound to come. No wonder this has only pushed up trade deficit to an alarming level.
Thus, it is high time for the government to make a shift in policy priority. The government in the last fiscal year attempted to bring a notable change by providing concession loans to livestock farmers. But that will clearly not suffice. The private sector must come forward and enhance farmers’ access to finances, which is much-needed for the modernization of farms and rise in productivity. Enhanced investments in agro-based processing and other industries to mechanize and modernize them is also the need of the hour.
Recently, the central bank issued a directive to the banks and financial institutions (BFIs) to increase their credit to the agriculture sector to 10 percent of their total credit portfolio over the next few years. This is one good move. However, BFIs are dragging feet, citing possible loan defaults. They claim the sector is still not a good investment avenue, something we disagree. With huge demand at home and also growing overseas markets, the sector promises a moderate return, if not lucrative as once they enjoyed from the real estate sector. All that is needed is innovation from the private entrepreneurs and well-designed products from banks. We suggest the bankers to uplift a sector that has a huge potential of returns for both the lenders and the farmers